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SELECTIONS AND DOCUMENTS 
IN ECONOMICS 



EDITED BY 

WILLIAM Z. RIPLEY, Ph.D. 

Professor oh Economics, Harvakd University 



SELECTIONS AND DOCUMENTS 
IN ECONOMICS 

Already published 

TRUSTS, POOLS AND CORPORATIONS 
By William Z. Ripley, Ph.D., Professor of 
Economics, Harvard University 

TRADE UNIONISM AND LABOR 
PROBLEMS 

By John R. Commons, Professor of Political 
Economy, University of Wisconsin 

SOCIOLOGY AND SOCIAL PROGRESS 

By Thomas N. Carver, Ph.D., Professor of 
Economics, Harvard University 

SELECTED READINGS IN PUBLIC 
FINANCE 

By Charles J. Bullock, Ph.D., Assistant Pro- 
fessor of Economics, Harvard University 

RAILWAY PROBLEMS 

By William Z. Ripley, Ph.D., Professor of 
Economics, Harvard University 

SELECTED READINGS IN ECONOMICS 
By Charles J. Bullock, Ph.D., Assistant Pro- 
fessor of Economics in Harvard University 

In preparation 

ECONOMIC HISTORY OF THE UNITED 
STATES. Vol. I , T7bs-i8bo ; Vol. TI , rSbo-iqoo. 
By Guy Stevens Callender, Professor of Political 
Economy, Yale University 



SELECTED READINGS IN 
ECONOMICS 



BY 

CHAELES J. BULLOCK 

Assistant Pkokessok of Economics in Harvard University 



GINN & COMPANY 

BOSTON • NKW YORK • CHIC.VCJO • LONDON 



^^ 



jLJKjtiAKYof CONGRESSJ. 
Two Coules Received t 
3 >90f 
Copynehf Entry 

'class ^ XXC, No, 
CO PY i3. J 







Copyright, 1907 
By CHARLES J. BULLOCK 



ALL EIGHTS RESERVED 
67.9 



^6e gttftenaeum 3 ^rteg 

GINN & COMPANY - PRO- 
PRIETORS . BOSTON • U.S.A. 



PREFACE 

This volume aims to supply the collateral reading needed for 
a general course of study in economics. It makes no effort to 
present selections upon all the topics treated in such a course, 
but endeavors merely to provide supplementary material, histor- 
ical, descriptive, and theoretical, which will enrich the instruc- 
tion offered. The footnotes to the several selections disclose the 
extent of the editor's indebtedness to various authors who have 
consented to the reproduction of passages from their works. In 
this place, however, acknowledgment should be made of the 
helpful advice and criticism received from the editor's col- 
league, Professor F. W. Tau§|Hg, of Harvard University. 

CHARLES J. BULLOCK 



CONTENTS 



Chapter Page 

I. The Effect ok the Phvsiograi'Hv of North America upon 

Men of European Origin. By N. S. Shaler 1 

II. The Sigxificante of the Frontier in American Histohv. By 

F. J. Turner 2.j 

III. The Growth of Cities in the United States. By A. B. Hart 60 

IV. American Agriculture 

1. The Agricultural Resources of the United States 73 

2. Agricultural rroduction in 100(). By James Wilson 74 

3. The General Characteristics of American Agriculture. By F. 

A. Walker 77 

4. The Future of American Agriculture. By James Wilsou ... Do 

V. The Organization of Production hefore and after the Indus- 
trial Revolution 

1. Adam Smith's Criticism of the Policy of the Gilds 104 

2. Domestic Industry us. the Factory System 114 

3. The Great Inventions. By Spencer W^alpole 125 

4. The Growth of the Factory System in the United States . . . 145 

VI. The Manufacturing Industries of the United States 

1. Tlie Advantages of the United States for ^Manufacturing Industries 155 

2. The Localization of Industry 165 

3. The Geographical Distribution of the Various Branches of Manu- 

factures 175 

4. The Organization of American Manufactures 184 

^'II. Studies of the Iron and Cotton Industries 

1. The Iron Industry in the United States. By F. W. Taussig . . 193 

2. An International Survey of the Cotton Industry. By Elijah 

Helm 215 

Vm. Human Wants and their Satisfaction 

1. Human Wants: A General Survey. By W. E. I learn .... 236 

2. I'he Theory of Utility. IJy W. S. Jevoiis . ." 245 

vii 



viii SELECTED HEADINGS IN ECONOMICS 

Chaptkb Page 

IX. The Law of Population 

1. The Movement of Population. By G. von Eiimelin .... 255 

2. The Doctrine of Malthus 275 

X. The Division of Labor 

1. The Views of Adam Smith 287 

2. A Criticism. By W. S. Jevons 298 

XI. The Accumulation of Capital : Saving and Spending 

1. The Doctrine of Mill 301 

2. The Seen and the Unseen. By Prederic Bastiat 307 

3. Criticism of the Doctrine of Saving. By J. A. Hobson . . . 318 

XII. The Organization of Exchange 

1. Sturbridge Pair in the Eighteenth Century 325 

2. An English Market Town of the Eighteenth Century . . . 331 

3. The Organization of the Grain Trade in the United States . . 333 

4. Speculation on the Produce Exchanges of the United States. 

By H. C. Emery , 340 

XIII. Prices 

1. The Relation of Retail Prices to Wholesale. By Robert Newman 354 

2. Variation in the Prices of Agricultural Products 363 

3. The Influence of Speculation upon Prices. By H. C. Emery . 367 

XIV. The Natural History of Money 

1. The Inconvenience of Barter 387 

2. Furs as Money 388 

3. Cattle as Money 388 

4. Shells as Money 390 

5. Other Commodities as Money : The Metals 394 

6. Barter Currency in North Carolina 398 

7. Why Coinage is Necessary 399 

8. Representative Money 400 

XV. Paper Money in France. By Andrew D. White 406 

XVI. The Regulation of a Bank-Note Currency. By J. Laurence 
Laughlin 

1. Circulation secured by Bonds 431 

2. Circulation secured by Commercial Assets 438 

3. A Guaranty Fund 443 

XVII. International Trade 

1. The Balance of Trade. By C. J. Bullock 453 

2. List's Argument for Protection , . . , 472 

3. Bastiat's Criticism of Protectionism . 



CONTENTS ix 

Chapter Page 

XVIII. The Distri»l'TU)n of Wealth 

1. Present Work and Present Wages. By F. W. Taussig . . . 513 

2. Historical Changes in the Rate of Wages. By Gustav Schmoller 533 

3. Wages and Profits in the Different Employments of Labor and 

Stock. By Adam Smith 543 

4. Historical Changes in the Kate of Interest. By Gustav Schmoller 563 

5. The Distribution of Urban Land Values. By R. M. Hurd . . 568 

XIX. Some Aspects of the Lauok Pkoblem 

1. The Policies of Labor Organizations 58'J 

2. The Knights of Labor and the American Federation of Labor. 

By William Kirk 613 

3. The Hours of Labor 640 

XX. Socialism 

1. The Cominuuist Manifesto 668 

2. Schaeffle's Criticism of Socialism in its General Economic 

Aspects 681 



SELECTED READIIs^GS m 
ECONOMICS 

CHAPTER I- 

THE EFFECT OF THE PHYSIOGRAPHY OF NORTH 
AMERICA UPON MEN OF EUROPEAN ORIGIN » 

In their organic life the continents of America have always 
stood somewhat apart from those of the Old World. This 
isolation is marked in every stage of their geological history. 
In each geological period they have many forms that never 
found their way to the other lands, and we fail to find there 
many species that are abundant in the continents of the Old 
World. 

The same causes that kept the animal and vegetable life of 
the Americas distinct from Europe and Asia have served to 
keep those continents apart from the human history of the Old 
World. Something more than the relations that are patent on 
a map are necessary to a proper understanding of the long- 
continued isolation of these continents. 

In the first place, we may notice the fact that from the Old 
World the most approachable side of these continents lies on 
the west. Not only are the lands of the New and Old World 
there brought into close relations with each other, but the 
ocean streams of the North Pacific flow toward America. More- 
over, the Nortli Pacific is a sea of a calmer temper than the 
North Atlantic, and the chance farera over its surface would be 

1 By Nathaniel S. Shaler. Reprinted from Winsor's Narrative and Critical 
History of America, Vol. IV, by arrangement with the publishers. Messrs. 
Houghton, Mifflin & Co., Boston. 

1 



2 SELECTED READINGS IN ECONOMICS 

more likely to survive its perils. In the North Atlantic, over 
which alone the Aryan peoples could well have found their way 
to America, we have a wide sea, which is not only the stormiest 
in the world, but its currents set strongly against western-going 
ships, and the prevailing winds blow from the west.^ If it had 
been intended that America should long remain unknown to the 
seafaring peoples of Semitic or Aryan race, it would not have 
been easy, within the compass of earthly conditions, to accom- 
plish it in a more effective manner than it has been done by thcx 
present geography. 

The result is that man, who doubtless originated in the Old 
World, early found his way to America by the Pacific; and all 
the so-called indigenous races known to us in the Americas 
seem to have closer relations to the peoples living in northern 
Asia than to those of any other country. It is pretty clear that 
none of the aboriginal American peoples have found their way 
to these continents by way of the Atlantic. 

Although the access to the continent of North America is 
much more easily had upon its western side, and though all the 
early settlements were probably made that way, the configura- 
tion of the land is such that it is not possible to get easy access 
to the heart of the continent from the Pacific shore ; so that 
though the Atlantic ocean was most forbidding and difficult 
as a way to America, once passed, it gave the freest and best 
access to the body of the continent. In the west the Cordilleras 
are a formidable bar to those who seek to enter the continent 
from the Pacific. None but a modern civilization would ever 
have forced its barriers of mountains and deserts. An ancient 
civilization, if it had penetrated America from the west, would 
have recoiled from the labor of traversing this mountain system, 
that combines the difficulties of the Alps and the Sahara. If 
European emigration had found such a mountain system on 
the eastern face of the continent, the history of America would 

1 It is likely that some part of the Aryan folk found their way to the Pacific 
shore in Korea and elsewhere ; but the Aryan migrations setting to the east 
must have been uncommon, and the chance of Caucasian blood reaching 
America by this route small. 



THE EFFECT OF PIIYSTOGKArHY 3 

have been very different. Scarcely any other continent offers 
such easy ingress as does this continent to those who come to 
it from the Atlantic side. Tlie valleys of the St. Lawrence, the 
Hudson, tlie Mississippi, in a fashion, also, of the Susquehanna 
and the James, break through or pass around the low coast 
mountains, and afford free w^ays into the whole of the interior 
that is attractive to European peoples. No part of the Alle- 
ghenian system presents any insuperable obstacles to those wlio 
seek to penetrate the inner lands. The whole of its surface is 
fit for human uses ; there are neither deserts of sand nor of 
snow. The ax alone would open ways readily passable to men 
and horses. So that when the early settlers had passed the sea, 
all their formidable geographical difficulties were at an end, — 
with but little further toil the wide land lay open to them. I 
propose in the subsequent pages to give a sketch of the physical 
conditions of this continent, with reference to the transplanted 
civilization that has developed upon its soil. It will be impos- 
sible, within the limits of tliis essay, to do more than indicate 
these conditions in a very general way, for the details of the 
subject w'ould constitute a work in itself. It will be most profit- 
able for us first to glance at the general relations of climate 
and soil that are found in North America, so far as these fea- 
tures bear upon the history of the immigration it has received 
from Europe. 

The climate of North America south of the Laurentian 
mountains and east of the Rocky mountains is much more like 
that of Europe than of any we find in the other continents. 
Although there are many points of difference, these variations 
lie well within the climatic range of Europe itself. On the 
south Mexico may well be compared to Italy and Spain ; in 
the southern parts of the Mississippi valley we have conditions 
in general comparable to those of Lombardy and central P^ ranee ; 
and in the northern portions of that area and along the sea 
border we can find fair parallels for the conditions of Great 
Britain, Germany, or Scandinavia. As is well known, the range 
of temperature during the year varies much more in America 
than in Europe, but tliese variations in themselves are of small 



4 SELECTED READINGS IN ECONOMICS 

importance. Man in a direct way is not much affected by tem- 
perature ; his elastic body, helped by his arts, may within 
certain limits neglect this element of climate. The real ques- 
tion is how far these temperatures affect the products of the 
soil upon which his civilization depends. In the case of most 
plants and domestic animals, their development depends more 
upon the summer temperature, or that of the spring season, 
than upon the winter climate. Now the summer climates of 
America are more like those of Europe than are those of the 
winter. So the new-won continent offered to man a chance 
to rear all the plants and animals which he had brought to 
domesticity in the Old World. 

The general character of the soil of North America is closely 
comparable with that of Europe, yet it has certain noteworthy 
peculiarities. In the first place, there is a larger part of 
America which has been subjected to glacial action than what 
we find in Europe. In Europe only the northern half of Great 
Britain, the Scandinavian peninsulas, a part of northern Ger- 
many, and the region of Switzerland were under the surface of 
the glaciers during the last glacial period. In America practi- 
cally all of the country north of the Susquehanna, and more 
than half of the states north of the Ohio, had their soils influ- 
enced by this ice period. The effects of glaciation on the soils 
of the region where it has acted are important. In the first 
place, the soils thus produced are generally clayey and of a 
rather stubborn nature, demanding much care and labor to 
bring them into a shape for the plow. The surface is usually 
thickly covered with stones, which have to be removed before 
the plow can be driven. I have estimated that not less than 
an average of thirty days' labor has been given to each acre of 
New England soil to put it into arable condition after the 
forest has been removed ; nearly as much labor has to be given 
to removing the forest and undergrowth : so that each cultivated 
acre in this glacial region requires about two months' labor 
before it is in shape for effective tillage.^ When so prepared 

1 I have elsewhere (Introduction to the Memorial History of Boston) noticed 
the fact that this difficulty in clearing the glaciated soils led the early settlers 



THE EFFECT OF PHYSIOGRAPHY 5 

the soils of glaciated districts are of a very even fertility. They 
hold the same character over wide areas, and their constitution 
is the same to great depths. Though never of the highest order 
of fertility, they remain for centuries constant in their power. 
I have never seen a worn-out field of this sort. Another pecul- 
iarity of the American soils is the relatively large area of lime- 
stone lands which the country affords. America abounds in 
deposits of this nature, which produce soils of the first quality, 
extremely well fitted to the production of grass and grains. 
Although statistical information is not to be obtained on such a 
matter, T have no doubt, after a pretty close scrutiny of both 
America and Europe, that the original fertility of America 
was greater than that of Europe ; but that, on the whole, the 
regions first settled by Europeans were much more difficult 
to subdue than the best lands of central and southern Europe 
had been.^ 

The foregoing statement needs the following qualification : 
owing to the relative dryness and heat of the American 
summer, the forests are not so swampy as they are in northern 
Europe, and morasses are generally absent. It required many 
centuries of continued labor to bring the surface of northern 
Germany, northern France, and of Britain into conditions fit 
for tillage. 

Next to deserts and snowy mountains, swamps are the great- 
est barriers to the movements of man. If the reader will follow 
the interesting account of the Saxon Conquest given in Mr. 
Green's volume on " The Making of England," he will see how 

of New England to use the poorer soils first. Along the shore and the rivers 
there is a strip of sandy terrace deposits, the soils of which are rather lean, but 
which are free from bowlders, so that the labor of clearing was relatively small. 
All, or nearly all, the first settlements in the glaciated districts were made on 
this class of .soils. 

^ The slow progress of our agricultural exports, during the first two hundred 
years of this country, is in good part to be explained by the stubborn character 
of the soil which was then in use. The only easily subdued soils in use before 
1800 were those of Virginia and Maryland. The sudden advance of the export 
trade in grain during the last fifty years marks the change which brought the 
great areas of non-glaciated soils of the Mississippi valley and the South 
under cultivation. 



6 SELECTED EEADTNGS IN ECONOMICS 

the tracts of marsh and marshy forest served for many centuries 
to limit the work of subjugation. In America there are no 
extensive bogs or wet forests in the upland district south of 
the St. Lawrence, except in Maine and the British provinces. 
In all other districts fire or the ax can easily bring the sur- 
face into a shape fit for cultivation. In taking an account of 
the physical conditions which formed the subjugation of North 
America by European colonies, we must give a large place 
to this absence of upland swamps and the dryness of the for- 
ests, which prevented the growth of peaty matter within their 
bounds. 

The success of the first settlements in America was also 
greatly aided by the fact that the continent afforded them a new 
and cheaper source of bread, in the maize or Indian corn which 
was everywhere used by the aborigines of America. It is diffi- 
cult to convey an adequate impression of the importance of this 
grain in the early history of America. In the first place, it yields 
not less than twice the amount of food per acre of tilled land, 
with much less labor than is required for an acre of small grains ; 
it is far less dependent on the changes of seasons ; the yield is 
much more uniform than that of the old European grains ; the 
harvest need not be made at such a particular season ; the crops 
may with little loss be allowed to remain ungathered for weeks 
after the grain is ripe ; the stalks of the grain need not be 
touched in the harvesting, the ears alone being gathered ; these 
stalks are of greater value for forage than is the straw of wheat 
and other similar grains. Probably the greatest' advantage of 
all that this beneficent plant afforded to the early settlers was 
the way in which it could be planted without plowing, amid 
the standing forest trees which had only been deadened by 
having their bark stripped away by the ax. This rough 
method of tillage was unknown among the peoples of the Old 
World. None of their cultivated plants were suited to it; but 
the maize admitted of such rude tillage. The aborigines, with 
no other implements than stone axes and a sort of spade armed 
also with stone, would kill the forest trees by girdling or cutting 
away a strip around the bark. This admitted the light to the 



THE EFFECT OF PHYSl()(iKAPHV 7 

soil. Then breaking up patches of earth, tliey planted the 
grains of maize among the standing trees ; its strong roots 
readily penetrated deep into the soil, and the strong tops fought 
their way to the light with a vigor which few plants possess. 
The grain was ready for domestic use within three months 
from the time of planting, and in four months it was ready 
for the harvest. 

The beginnings in civilization which the aborigines of this 
country had made, rested on this crop and on the pumpkin, 
which seems to have been cultivated with it by the savages, as 
it still is by those who inherited their lands and their methods 
of tillage. The European colonists almost everywhere and at 
once adopted this crop and the methods of tillage which the 
Indians used. Maize fields, with pumpkin vines in the inter- 
spaces of the plants, became for many years the prevailing, 
indeed almost the only, crop throughout the northern part of 
America. It is hardly too n^ich to say, that, but for these 
American plants and the American method of tilling them, 
it would have been decidedly more difficult to have fixed the 
early colonies on this shore. 

Another American plant has had an important influence on 
the history of American commerce, though it did not aid in 
the settlement of the country, — tobacco. That singular gift 
of the New World to the Old quickly gave the basis of a gi-eat 
export to the colonies of Maryland, Virginia, and North Caro- 
lina ; it alone enabled the agriculture of the southern colonies 
to outgrow in wealth those which were planted in more north- 
ern soil. To this crop, which demands much manual labor of 
an unskilled kind, and rewards it well, we owe the lapid devel- 
opment of African slavery. It is doubtful if this system of 
slavery would ever have flourished if America had been limited 
in its crops to those plants which the settlers brought from the 
Old World. Although African slavery existed for a time in 
the states north of the tobacco region, it died away in them 
even before the humanitarian sentiments of modern times could 
have aided in its destruction ; it was the profitable nature of 
tobacco crops which fixed this institution on our soil, as it was 



8 SELECTED EEADIN (18 IN ECONOMICS 

the great extension of cotton culture which made this system 
take on its overpowering growth during the first decades of 
the nineteenth century. 

Another interesting effect of the conditions of tillage which 
met the early settlers upon this soil depends upon the peculiar 
distribution of forests in North America. All those regions 
which were first occupied by European peoples were covered 
by very dense forests. To clear these woods away required 
not less than thirty days' labor to each acre of land. In the 
glaciated districts, as before remarked, this labor of preparation 
was nearly doubled. The result was that the area of tillage 
only slowly expanded as the population grew denser, and the 
surplusage of grain for export was small during the first two 
centuries. When in the nineteenth century the progress west- 
ward suddenly brought the people upon the open lands of the 
prairies, the extension of tillage went on with far greater 
celerity. We are now in the midst of the great revolution 
that these easily won and very fertile lands are making in the 
affairs of the world. For the first time in human history a 
highly skilled people have suddenly come into possession of a 
vast and fertile area which stands ready for tillage without the 
labor which is necessary to prepare forest land for the plow. 
They are thus able to fiood the grain markets of the world with 
food derived from lands which represent no other labor beyond 
tillage except that involved in constructing railways for the 
exportation of their products. This enables the people of the 
western plains to compete with countries where the land repre- 
sents a great expenditure of labor in overcoming the natural 
barriers to the cultivation of the soil. 

There are many lesser peculiarities connected with the soils 
of North America that have had considerable influence upon 
the history of the people; the most essential fact is, however, 
that the climatic conditions of this continent are such that all 
the important European products, except the olive, will flourish 
over a wide part of its surface. " So that the peoples who come 
to it from any part of Europe find a climate not essentially 
different from their own, where the plants and animals on 



Till-: KFKECT OF PlI VSKXJKAPHV 9 

whicli their civilization rested will flourish as well as in their 
own home.^ 

We may note also that the climate of North America brought 
Europeans in contact with no new diseases. North of the Gulf 
of Mexico the maladies of man were not increased by the trans- 
portation from Europe. It is difficult to arrive at a satisfactory 
determination concerning the effect of American conditions 
upon the peoples who have come from Europe to live a life 
of many generations upon its soil. Much has been said in a 
desultory way upon this subject, but little that has any very 
clear scientific value. The problem is a very complicated one. 
In the first place, it is very difficult, if not impossible, to sepa- 
rate the effects of climate from those brought about by a 
diversity of the social conditions, such as habits of labor, of 
food, etc. Moreover, the problem is further complicated by the 
fact that there has been a constant influx of folk into America 
from various parts of Europe, so that in most parts of the coun- 
try there has been a constant admixture of the old blood and 
the new. 

After reviewing the sources of information, I am convinced 
that the following facts may be regarded as established : the 
American people are no smaller in size than are the peoples 
in Europe from which they are derived ; they are at least as 
long-lived; their capacity to withstand wounds, fatigue, etc., is 
at least as great as that of any European people ; the average 
of physical beauty is probably quite as good as it is among an 
equal population in the Old World ; the fecundity of the people 

1 It is an interesting fact that while America has given but one domesticated 
animal to Europe, in the turkey, it has furnished a number of the most impor- 
tant vegetables, among them maize, tobacco, and the potato. The absence of 
strong domesticable animals in America doubtless affected the development of 
civilization among its indigenous people. The buffalo is apparently not domes- 
ticable. The horse, which seems to have been developed on North American 
soil, and to have spread thence to Europe and Asia, seems to have disappeared 
in America before the coming of man to its shores. The only beast which 
could profitably be subjugated was the weak vicuna, which could only be used 
for carrying light burdens. But for the help given them by the sheep, the bull, 
and the horse, we may well doubt if the Old-World races would have won their 
way much more effectively than those of America had done. 



10 SELECTED READINGS IN ECONOMICS 

is not diminished. The compass of this essay will not permit 
me to enter into the details necessary to defend these proposi- 
tions as they might be defended. I will, however, show certain 
facts which seem to support them. First, as regards the phys- 
ical proportions of the American people. By far the largest 
collections of accurate measurements that have ever been made 
of men were made by the officers of the United States Sanitary 
Commission during the late Civil War. These statistics have 
been carefully tabulated by Dr. B. A. Gould, the distinguished 
astronomer. From the results reached by him it is plain that 
the average dimensions of these troops were as good as those 
of any European army ; while the men from those states where 
the population had been longest separated from the mother 
country were, on the whole, the best formed of all. 

The statistics of the life-insurance companies make it clear 
that the death rate is not higher in America among the classes 
that insure than in England. I am credibly informed that 
American companies expect a longer life among their clients 
than the English tables of mortality assume. 

The endurance of fatigue and wounds in armies has been 
proved by our Civil War to be as good as that of the best 
English or Continental troops. Such forced marches as that 
of Buell to the relief of the overwhelmed troops at Pittsburg 
Landing, or Shiloh, — where the men marched thirty-five miles 
without rest, and at once entered upon a contest which checked 
a victorious army, — is proof enough of the physical and moral 
endurance of the people. The extraordinary percentage of seri- 
ously wounded men that recovered during the war, — a pro- 
portion without parallel in European armies, — can only be 
attributed to the innate vigor of the men, and not to any 
superiority in the treatment they received. The distinguished 
physiologist. Dr. Brown-Sequard, assures me that the American 
body, be it that of man or beast, is more enduring of wounds 
than the European ; that to make a given impression upon the 
body of a creature in America it is necessary to inflict severer 
wounds than it would be to produce the same effect on a 
creature of the same species in Europe. His opportunities for 



THE EFFECT OF PHYSIOGEAPHY 11 

forming an opinion on this subject have been singularly great, 
so that the assertion seems to me very important. That the 
fecundity of the population is not, on the whole, diminishing, 
is sufficiently shown by the statistics of the country. In the 
matter of physical beauty, the condition of the American people 
cannot, of course, be made a matter of statistics. The testi- 
mony of all intelligent travelers is to the effect that the forms 
of the people have lost nothing of their distinguished inherit- 
ance of beauty from their ancestors. The face is certainly no 
less intellectual in its type than that of the Teutonic peoples 
of the Old World, while the body is, though perhaps of a less 
massive mold, without evident marks of less symmetry. 
******** 

I next propose to consider the especial physical features of 
the continent in reference to the several settlements that were 
made upon it, the extent to which the geography and the local 
conditions of soil, climate, etc., have affected the fate of the 
several colonies planted on the eastern shore of North America 
north of Mexico. 

Chance rather than choice determined the position of the 
several colonies that were planted on the American soil. So 
little was known of the natural conditions of the continent, or 
even of its shore geography, and the little that had been dis- 
covered was so unknown to navigators in general, that it was 
not possible to exercise much discretion in the placing of the 
first settlers in the New World. It happened that in this lot- 
tery the central parts of the American continent fell to the 
English people ; while the French, by one chance and another, 
came into possession of two parts of the coast separated by 
over two thousand miles of shore. It will be plain from the 
map that these two positions were essentially the keys to the 
continent. The access to the interior of the continent by natural 
waterways is by two lines, — on the north by the St. Lawrence 
system of lakes and rivers; on the south by the Mississippi 
system of rivers, which practically connects with the St. Law- 
rence system. Fortune, in giving France the control of these 
two great avenues, offered her the mastery of the whole of its 



12 SELECTED READINGS IN ECONOMICS 

vast domain. We have only to consider the part that the path- 
way of the Rhine played in the history of mediaeval trade in 
Europe, to understand how valuable these lines would have 
been until railways and canals had come to compete with 
waterways. 

******** 

Throughout their efforts in North America the French 
showed a capacity for understanding the large questions of 
political geography, a genius for exploration, and a talent for 
making use of its results, or guiding their way to dominion, 
that is in singular contrast with the blundering processes of 
their English rivals. They seem to have understood the possi- 
bilities of the Mississippi valley a century and a half before 
the English began to understand them. They planted a sys- 
tem of posts and laid out lines for commerce through this 
region ; they strove to organize the natives into civilized com- 
munities ; they did all that the conditions permitted to achieve 
success. Their failure must be attributed to the want of colo- 
nists, to the essential irreclaimableness of the American savage, 
and to the want of a basis for an extended commerce in this 
country. There were no precious metals to tempt men into 
this wilderness, and none of the fancy for life or for lands 
among the home people, — that wandering instinct which has 
been the basis of all the imperial power of the English race. 
Thus a most cleverly devised scheme of continental occupation, 
which was admirably well adapted to the physical conditions 
of the country, never came near to success. It fell beneath. 
the clumsy power of another race that had the capacity for 
fixing itself firmly in new lands, and that grew without dis- 
tinct plan until it came to possess them altogether. 

The British settlements on the American coast were not 
very well placed for other than the immediate needs that led 
to their planting. They did not hold any one of the three 
waterways which led from the coast into the interior of the 
continent, as we have seen the French obtained the control of 
the St. Lawrence and the Mississippi, and, as is well known, 
the Dutch possession of the Hudson, which constituted the 



THE EFFECT OF rilY8iOGKAPH V 13 

third and least complete of the waterways into the interior 
of the continent. 

As regards their ph^^sical conditions, the original English 
colonies are divisible into three groups, — those of New Eng- 
land ; those of the Chesapeake and Delaware district, including 
Pennsylvania, Virginia, Maryland, New Jersey, and the central 
part of North Carolina ; and those on the coast region of the 
Carolinas. Each of these regions has its proper [)hysical char- 
acters, which have had special effects upon tlieir early history. 
In New England we have a shore line that affords an excellent 
system of harbors for craft of all sizes, and a sea that abounds 
in fish. The land lias a rugged surface made up of old mountain 
folds, which have been worn down to their roots by the sea and 
by the glaciers of many ice periods. There are no extended 
plains, and where small patches of level land occur, as along 
the sea, there they are mostly of a rather barren and sandy 
character. The remainder of the surface is very irregular, and 
nearly one half of it is either too steep for tillage or consists of 
exposed rocks. The soil is generally of clay, and was originally 
covered almost everywhere with closely sown bowlders that had 
to be removed before the plow could do its work. The livers 
are mostly small, and from their numerous rapids not navigable 
to any great distance from the sea, and none of their valleys 
afford natural ways into the interior of the continent. In 
general structure this region is an isolated mass separated from 
the body of the continent by the high ridges of the Green 
mountains and the Berkshire hills, as well as by the deep 
valley in which lie the Hudson and Lake Cliamplain. The 
climate is rigorous, only less so than that of Canada. There 
are not more than seven months for agricultuial labor. 

The New England district, iiuluding therein what we may 
term the Acadian peninsula of North America, or all east of 
Lake Champlain and the Hudson and south of the St. Lawrence, 
is more like northern Europe than any other part of America. 

Nature does not give with free hands in this region, yet it 
offered some advantages to the early settlers. The general stub- 
bornness of the soil made the coast Indians few in number, 



14 SELECTED HEADINGS IN ECONOMICS 

while its isolation secured it from the more powerful tribes of 
the West. The swift rivers afforded abundant water power, 
that was early turned to use, and in time became the most 
valuable possession that the land afforded. The climate, though 
strenuous, was not unwholesome, and its severity gave protec- 
tion against the malarial fevers which have so hindered the 
growth of settlements in more southern regions. Maize and 
pumpkins could be raised over a large part of its surface, and 
afforded cheap and wholesome food with little labor. The rate 
of gain upon the primeval forest was at first very slow ; none of 
the products of the soil, except in a few instances its timber, 
had at first any value for exportation. The only surplusage 
was found in the products of the sea. In time the demand for 
food from the West Indian islands made it somewhat profitable 
to export grain. Practically, however, these colonies grew with- 
out important help from any foreign commerce awakened by 
the products of their soil. Their considerable foreign trade 
grew finally upon exchanges, or on the products of the sea 
fisheries and whaling. Even the trade in furs, which was so 
important a feature in the French possessions, never amounted 
to an important commerce in New England. The aborigines 
were not so generally engaged in hunting, nor were the rivers 
of New England ever very rich in valuable fur-bearing species. 
The most we can say of New England is, that it offered a 
chance for a vigorous race to found in safety colonies that 
would get their power out of their own toil, with little help 
from fortune. It was very badly placed for the occupancy of a 
people who were to use it as a vantage ground whence to secure 
control over the inner parts of the continent. But for the 
modern improvement in commercial ways, the isolation of this 
section from the other parts of the •continent would have kept 
it from ever attaining the importance in American life which 
now belongs to it. 

The settlements that were made along the Hudson were, as 
regards their position, much better placed than were those of 
New England. The valley of this stream is, as is well known 
to geologists, a part of the great mountain trough separating 



THE EFFECT OF PHYSIOGRAPHY 15 

from the newer Allegbenian system on the west the old moun- 
tain system of the Appalachians, which, known by the separate 
names of the Green mountains, Berkshire hills, South moun- 
tains. Blue ridge, and Black mountains, stretches from the 
St. Lawrence to the northern part of Georgia. In the Hudson 
district the Appalachian or eastern wall of the valley is known 
as the Beijishire hills and the Green mountains, while the 
western or Alleghenian wall is formed by the Catskill moun- 
tains and their northern continuation in the Hilderburg hills. 
On the south the Appalachian wall falls away, allowing the 
stream a wide passage to the sea ; on the northwestern side the 
Catskills decline, opening the wide passage through which flows 
the Mohawk out of the broad, fertile upland valley which it 
drains. It appears likely that the Mohawk valley for a while 
in recent geological times afforded a passage of the waters of 
lake Ontario to the channel of the Hudson. This will serve to 
show how easy the passage is between the Hudson valley and 
the heart of the continent. Save that it is not a waterway, this 
valley affords, through the valley of the Mohawk, the most 
perfect passage through the long line of the Alleglienies. 
Before this passage could have any importance to its first 
European owners, it fell into the hands of the English settlers. 
The fertility of this valley of the Hudson and Mohawk is far 
greater than that of New England. A larger portion of the 
land is arable, and it is generally more fertile than that of the 
region to the east. The underlying rock of the country is 
generally charged with lime, which assures a better soil for 
grain crops than those derived from the more argillaceous 
formations of New England. The Mohawk is, for its size, 
perhaps the most fertile valley in America. The climate of 
this district is on the whole more severe than that of New 
England, but the summer temperature admits the cultivation 
of all the crops of the Northern States. 

Though from Holland, the original settlers of the Hudson 
valley were by race and motives so closely akin to the English 
settlers to the north and south of them that a perfect fusion 
has taken place. The Dutch language is dead save in the 



16 SELECTED READINGS IN ECONOMICS 

mouths of a few aged people, and of their institutions nothing 
has remained.^ 

The most striking contrast between the physical conditions 
of the New York colony and those of New England is its rela- 
tive isolation from the sea. Staten Island and Long Island are 
strictly maritime ; the rest is almost continental in its relations. 

South of New York the conditions of the colonists as regards 
agriculture were very different from Avhat they were north of 
that point. To the north the soil is altogether the work of the 
glacial period. It is on this account stony, and hard to bring 
into cultivation, as before described; but when once rendered 
arable, it is very enduring, changing little with centuries of 
cropping. South of this point the soil is derived from the rocks 
which lie below it, save just along the sea and the streams. 
The decayed rock that happens to lie just beneath the surface 
produces a fertile or an infertile earth, varied in quality accord- 
ing as the rocks. On the whole it is less enduring than are the 
soils of New England, though it is much easier to bring it into 
an arable state. It also differs from glacial soil in the fact that 
there is an absolute dependence of the qualities it possesses 
upon the subjacent rock. When that changes, the soil at once 
undergoes a corresponding alteration. In certain regions it may 
be more fertile than any glacial soil ever is ; again, its infertility 
may be extreme, as, for instance, when the underlying rocks are 
sandstones containing little organic matter. 

In this southern belt this region near the shore is rather 
malarial. The soil there is sandy, and of a little enduring nature, 
and the drainage is generally bad. Next within this line we 
have the fringe of higher country which lies to the east of the 
Blue ridge. This consists of a series of rolling plains, gener- 
ally elevated four or five hundred feet above the sea. Near the 

1 It is worth while to notice that this Dutch colonj'^ never had the energetic 
life of the English settlements, which may be in part attributed to the effort to fix 
the continental seigniorial relations upon the land. It failed here as it failed in 
Canada, but it kept both colonies without the breath of hopeful, eager life which 
better land laws gave to the English settlements. Nothing shows so well the per- 
fect unfitness of all seigniorial land systems to the best development of a country 
as the entire failure which met all efforts to fix them in the American colonies. 



THE EFFECT OF PHYSIOGKAPHY 17 

Blue ridge it is changed into a rather hilly district, with 
several ranges of detached mountains upon its surface ; to the 
east it gradually declines into the plain which borders the sea. 
Within the Blue ridge it has the steep walls of the old granite 
mountains, which, inconspicuous in New Jersey, increase in 
Pennsylvania to important hills, become low mountains of 
picturesque form in Virginia, and finally in North and South 
Carolina attain the highest elevation of an}^ land in eastern 
North America. This mountain range widens as it increases in 
height, and the plains that border it on the east grow also 
in height and width as we go to the southward in Virginia. 
All this section is composed of granite and other ancient rocks, 
which by their decay afford a very good soil. Beyond the Blue 
ridge, and below its summits, are the Alleghenies. Between 
them is a broad mountain valley, known to geologists as the 
great Appalachian valley. This is an elevated irregular table- 
land, generally a thousand feet or more above the sea, and 
mostly underlaid by limestone, which by its decay affords a 
very fertile soil. This singular valley is traceable all the way 
fiom Lake Champlain to Georgia. The whole course of the 
Hudson lies within it. As all the mountains rise to the south- 
ward, this valley has its floor constantly farther and farther 
above the sea, until in southern Virginia much of its surface is 
about two thousand feet above that level. This southward 
increase of elevation secures it a somewhat similar climate 
throughout its whole length. This, the noblest valley in 
America, is a garden in fertility, and of exceeding beauty. 
Yet west of this valley the Alleghenies proper extend, a wide 
belt of mountains, far to the westward. Their surface is gener- 
ally rugged, but not infertile ; they, as well as the Blue ridge, 
are clad with thick forests to their very summits. 

The shore of this, the distinctly southern part of the North 
American coast, is deeply indented by estuaries, which have 
been cut out principally by the tides. These deep sounds and 
bays, — the Delaware, Chesapeake, Pamlico, Albemarle, and 
others, — with their very many ramifications, constitute a dis- 
tinctive feature in North America. Although these indentations 



18 SELECTED READINGS IN ECONOMICS 

are probably not of glacial origin, except, perhaps, the Delaware, 
they much resemble the great fiords which the glaciers have 
produced along the shores of regions farther to the northward. 
By means of these deep and ramified bays all the country of 
Virginia and Maryland lying to the east of the Appalachians 
is easily accessible to ships of large size. This was a very 
advantageous feature in the development of the export trade 
of this country, as it enabled the planters to load their crops 
directly into the ships which conveyed them to Europe, and 
this spared the making of roads, — a difficult task in a new 
country. The principal advantage of this set of colonies lay in 
the fact that they were fitted to the cultivation of tobacco. 
The demand for this product laid the foundations of American 
commerce, and was full of good and evil consequences to this 
country. It undoubtedly gave the means whereby Virginia 
became strong enough to be, on the part of the South, the 
mainstay of the resistance of the colonies to the mother 
country. On the other hand, it made African slavery profit- 
able, and so brought that formidable problem of a foreign and 
totally alien race to be for all time a trouble to this country. 
Although the cultivation of cotton gave the greatest extension 
to slavery, it is not responsible for its firm establishment on 
our soil. This was the peculiar work of tobacco. 

The climate of this region is, perhaps, the best of the United 
States. The winters want the severity that characterizes them 
in the more northern states, and the considerable height of the 
most of the district relieves it of danger from fevers. I have 
elsewhere spoken of the evidences that this district has main- 
tained the original energy of the race that founded its colonies. 

The Carolinian colonies are somewhat differently conditioned 
from those of Virginia, and their history has been profoundly 
influenced by their physical circumstances. South of the James 
river the belt of low-lying ground near the seashore widens 
rapidly, until the nearest mountain ranges are one hundred and 
fifty miles or more from the shore. This shore belt is also much 
lower than it is north of the James ; a large part of its surface 
is below the level where the drainage is effective, and so is unfit 



thp: effect of physiography 19 

for tillage. Much of it is swamp. IMie rivers do not terminate 
in as deep and long bays, with steep clay banks for borders, as 
they do north of the .fames. They are generally swamp-bordered 
in their lower courses, and not very well suited for settlements. 

The soil of these regions is generally rather infertile ; it is 
especially unfitted for the cultivation of grains except near the 
shore, where the swamps can often be converted into good rice 
fields. Maize can be tilled, but it, as well as wheat, barley, etc., 
gives not more than half the return that may be had from them 
in Virginia. Were it not for the cotton crop, the lowland South 
would have fared badly. 

All the shore belt of country is unwholesome, being affected 
with pernicious fevers, which often cannot be endured by the 
whites, even after the longest acclimatization. The interior 
region, even when not much elevated above the sea, or away 
from the swamps, is a healthy country, and the district within 
sight of the Blue Ridge and the Black mountains is a very 
salubrious district. This region was, however, not at once 
accessible to the colonists c^i the Carolinian shore, and was not 
extensively settled for some time after the country was first 
inhabited, and then was largely occupied by the descendants of 
the Virginian colonists. 

The history of this country has served to show that much of 
the lowlands near the shore is not well fitted for the use of 
European peoples ; they are likely to fall into the possession 
of the African folk, who do not suffer, but rather seem to pros- 
per in the feverish lowlands. The interior districts beyond the 
swamp country are well suited to Europeans, and where the 
surface rises more than one thousand feet above the sea, as it 
does in western North and South Carolina, the climate is 
admirably well suited to the European race. It is probable that 
the English race has never been in a more favorable climate 
than these uplands afford. 

This Carolinian section was originally settled by a far more 
diversified population than that which formed the colonies to 
the northward. This was especially the case in North Carolina. 
This colony was originally possessed by a land company, which 



20 SELECTED EEADINGS IN ECONOMICS 

proposed to find its profit in a peculiar fashion. This company 
paid contractors so much a head for human beings put ashore 
in the colony. One distinguished trader in population, a certain 
Baron de Graffenreid, settled several thousand folk at and about 
New Berne, on the swampy shores of the eastern sounds. They 
were from a great variety of places, — a part from England, 
others from the banks of the Rhine, others again from Switzer- 
land. There was a great mass of human driftwood in Europe at 
the close of the seventeenth century, the wreck of long-continued 
wars, so it was easy to bring immigrants by the shipload if they 
were paid for. But the material was unfit to be the foundation 
of a state. From this settlement of eastern North Carolina is 
descended the most unsatisfactory population in this country. 
The central and western parts of North Carolina had an admi- 
rable population that principally came to the state through 
Virginia; but this population about Pamlico and Albemarle 
sounds, though its descendants are numerous, perhaps not 
numerically much inferior to that which came from the Virginia 
settlements, is vastly inferior to it in all the essential qualities 
of the citizen. From the Virginia people have come a great 
number of men of national and some of world-wide reputation. 
It is not likely that any other population, averaging in numbers 
about five hundred thousand souls, has in a century furnished 
as many able men. On the other hand, this eastern North 
Carolina people has given no men of great fame to the history 
of the country, while a large part of the so-called " poor white " 
population of the South appears to be descended from the 
mongrel folk who were turned ashore on the eastern coast of 
North Carolina. 

South Carolina was much more fortunate in its early settlers 
on its seaboard than the colony to the north. Its population 
was drawn from rather more varied sources than that of Virginia, 
New York, or New England, but it would be hard to say that 
its quality was inferior ; despite the considerable admixture of 
Irish and French blood, it was essentially an English colony. 

On the whole, although the quality of the climate would lead 
some to expect a lowering of the quality of the English race in 



THE EFFECT OK PHYSIOGRAPII V 21 

these southern colonies, it is not possible to trace any such effect 
in the people. Although the laboring classes of whites along 
the seaboard appear to occupy a physical level rather below that 
of the same class in Virginia and the more northern regions, 
they have great endurance, as was sufficiently proven by tlie 
fact that they made good soldiers during the recent Civil War. 
In the upland districts of these states, in western North and 
South Carolina, and especially in northern Georgia, the ph3-sical 
constitution of the people is, I believe, the best in this country. 
In the district north of Pennsylvania, the elevation of the 
mountains, or the table-lands which lie about them, is not profit- 
able to the dwellers in these districts ; each added height 
scarcely gives any additional healthfulness, and the additional 
cold is hurtful to most crops. In this southern region, however, 
the greater height and width of the Appalachian mountain 
system, including its elevated valleys, is a very great advantage 
to this region in all that conceins its fitness for the use of man. 
The climate of one half of the country south of the James and 
Ohio rivers and east of the Mississippi is purified and refreshed 
by the elevations of this noble mountain system. It is the 
opinion of all who have examined this country that it is ex- 
tremely well fitted for all the uses of the race : an admirable 
climate much resembling that of the Apennines of Tuscany, a 
fertile soil admitting a wide diversity of products, and a great 
abundance of water power characterize all this upland district 
of the South. 

A few words will suffice for all that concerns the mineral 
resources of the original colonies. At the outset of the colo- 
nization of America we hear a good deal about the search for 
gold ; fortunately there was a very uniform failure in the first 
efforts to find this metal, so that it ceased to play a part in 
the history of these colonies. Very little effort to develop the 
mineral resources of this region was made during the colonial 
period. A little iron was worked in Rhode Island, New York, 
and Virginia, some search of a rather fruitless sort was made 
for copper ore in Connecticut, but of mining industry, prop- 
erly so called, there was nothing until the Revolutionary War 



22 SELECTED READINGS IN ECONOMICS 

stimulated the search for iron and lead ores. The discovery 
of the gold deposits in the Carolinas did not come about until 
after the close of the colonial period. These deposits were not 
sufficiently rich to excite an immigration of any moment to the 
fields where they occur. 

Practically the mineral resources of what we may term the 
Appalachian settlements of North America never formed any 
part of the inducements which led immigrants to them. In this 
respect they differ widely from the other colonies which were 
planted in the Americas. The greater part of the Spanish and 
Portuguese settlements in America were made by gold hunters. 
The state of morals which led to these settlements was not 
favorable to the formation of communities characterized by 
high motives. There were doubtless other influences at work 
to lower the moral quality of the settlements in Mexico and 
South America, but the nature of the motives which brought 
the first settlers upon the ground and gave the tone to society is 
certainly not the Ipast important of the influences which have 
affected the history of the American settlements. 

To close this brief account of the physical conditions of the 
first European settlements in North America, we may say that 
the English colonies were peculiarly fortunate in those physical 
conditions upon which they fell. There is no area in either of 
the Americas, or for that matter in the world outside of Europe, 
where it would have been possible to plant English colonies 
that would have been found so suitable for the purpose ; climate, 
soil, contact with the sea, and a chance of dominion over the 
whole continent were given them by fortune. They had but 
the second choice in the division of the New World ; yet to the 
English fell the control of those regions which experience has 
shown to hold its real treasures. Fortune has repeatedly blessed 
this race ; but never has she bestowed richer gifts than in the 
chance that gave it the Appalachian district of America. 



CHAPTER II 

THE SIGNIFICANCE OF THE FRONTIER IN AMERICAN 

HISTORY ' 

In a bulletin of the Superintendent of the Census for 1890 
appear these significant words: "Up to and including 1880 the 
country had a frontier of settlement, but at present the unsettled 
area has been so broken into by isolated bodies of settlement 
that there can hardly be said to be a frontier line. In the dis- 
cussion of its extent, its westward movement, etc., it cannot, 
therefore, any longer have a place in the census reports." This 
brief official statement marks the closing of a great historic 
movement. Up to our own day American history has been in 
a large degree the history of the colonization of the West. The 
existence of an area of free land, its continuous recession, and 
the advance of American settlement westward explain Ameri- 
can development. 

Behind institutions, behind constitutional forms and modifica- 
tions, lie the vital forces that call these organs into life and 
shape them to meet changing conditions. The peculiarity of 
American institutions is the fact that they have been compelled 
to adapt themselves to the changes of an expanding people — 
to the changes involved in crossing a continent, in winning a 
wilderness, and in developing at each area of this progress out 
of the primitive economic and political conditions of the frontier 
into the complexity of city life. Said Calhoun in 1817, "We 
are great, and rapidly — I was about to say fearfully — grow- 
ing ! " So saying, he touched the distinguishing feature of 
American life. All people show development; the germ theory 

* By Professor F. J. Turner. Extracts reprinted, by courtesy of the author 
and publisher, from the Fifth Yearbook of the National Ilerbart Society (Uni- 
versity of Chicago Press, 1899). First edition printed iu Report of American 
Historical Association for 1S9S. 

28 



24 SELECTED EEADINGS IN" ECONOMICS 

of politics has been sufficiently emphasized. In the case of 
most nations, however, the development has occurred in a limited 
area ; and if the nation has expanded, it has met other growing 
peoples whom it has conquered. But in the case of the United 
States we have a different phenomenon. Limiting our attention 
to the Atlantic coast, we have the familiar phenomenon of the 
evolution of institutions in a limited area, such as the rise of 
representative government ; the differentiation of simple colonial 
governments into complex organs ; the progress from primitive 
industrial society, without division of labor, up to manufactur- 
ing civilization. But we have in addition to this a recurrence 
of the process of evolution in each western area reached in the 
process of expansion. Thus American development has exhib- 
ited not merely advance along a single line, but a return to 
primitive conditions on a continually advancing frontier line, 
and a new development for that area. American social develop- 
ment has been continually beginning over again on the frontier. 
This perennial rebirth, this fluidity of American life, this expan- 
sion westward with its new opportunities, its continuous touch 
with the simplicity of primitive society, furnish the forces dom- 
inating American character. The true point of view in the his- 
» tory of this nation is not the Atlantic coast: it is the great 
West. Even the slavery struggle, which is made so exclusive 
an object of attention by some historians, occupies its important 
place in American history because of its relation to westward 
expansion. 

In this advance, the frontier is the outer edge of the wave, — 
the meeting point between savagery and civilization. Much has 
been written about the frontier from the point of view of border 
warfare and the chase, but as a field for the serious study of the 
economist and the historian it has been neglected. 

The American frontier is sharply distinguished from the 
European frontier, — a fortified boundary line running through 
dense populations. The most significant thing about the Amer- 
ican frontier is, that it lies at the hither edge of free land. In 
the census reports it is treated as the margin of that settle- 
ment which has a density of two or more to the square mile. 



THE FRONTIER IN AMERICAN HISTORY 2^ 

The term is an elastic one, and for our purposes does not need 
sharp definition. We shall consider the whole frontier belt, 
including the Indian country and the outer margin of the 
" settled area " of the census reports. This paper will make 
no attempt to treat the subject exhaustively ; its aim is simply 
to call attention to the frontier as a fertile field for investi- 
gation, and to suggest some of the problems which arise in 
connection witli it. 

In the settlement of America we have to observe how Euro- 
pean life entered the continent, and how America modified and 
developed that life and reacted on Europe. Our early history 
is the history of European germs developing in an American 
environment. Too exclusive attention has been paid by insti- 
tutional students to the Germanic origins, too little to the 
American factors. The frontier is the line of most rapid and 
effective Americanization. The wilderness masters the colonist. 
It finds him a European in dress, industries, tools, modes of 
travel, and thought. It takes him from the railroad car and 
puts him in the birch canoe. It strips off the garments of civil- 
ization and arrays him in the hunting shirt and moccasin. It 
puts him in the log cabin of the Cherokee and Iroquois and 
runs an Indian palisade around him. Before long he has gone 
to planting Indian corn and plowing with a sharp stick ; he 
shouts the war ciy and takes the scalp in orthodox Indian 
fashion. In short, at the frontier the environment is at first too 
strong for the man. He must accept the conditions which it 
furnishes, or perish, and so he fits himself into the Indian clear- 
ings and follows the Indian trails. Little by little he transforms 
the wilderness, but the outcome is not the old Europe, not sim- 
ply the development of Germanic germs, any more than the 
first phenomenon was a case of reversion to the Germanic mark. 
The fact is, that here is a new product that is American. At 
first, the frontier was the Atlantic coast. It was the frontier of 
Europe in a very real sense. Moving westward, the frontier 
became more and more American. As successive terminal mo- 
raines result from successive glaciations, so each fiontier leaves 
its traces behind it, and when it becomes a settled area the region 



26 SELECTED READINGS IN ECONOMICS 

still partakes of the frontier characteristics. Thus the advance 
of the frontier has meant a steady movement away from the influ- 
ence of Europe, a steady growth of independence on American 
lines. And to study this advance, the men who grew up under 
these conditions, and the political, economic, and social results 
of it, is to study the peculiarly American part of our history. 

Let us then grasp the conception of American society steadily 
expanding into new areas. How important it becomes to watch 
the stages, the processes, and the results of this advance ! The 
conception will be found to revolutionize our study of American 
history. 

Stages of Fkontier Advance 

In the Report on Population of the United States of the 
Eleventh Census, Part I, the student will find a series of maps 
representing the advance of population at each census period 
since 1790. By a consideration of these maps in connection 
with a relief map of the United States, and with the Reconnois- 
sance Map of the United States showing the distribution of the 
geologic system (Fourteenth Annual Report of the United 
States Geological Survey, plate ii), and with the Contour Map 
of the United States (in blue and brown only, without culture 
data, published by the United States Geological Survey), it will 
become plain that for an adequate comprehension of the course 
of American history, it is necessary to study the process by 
which the advancing flood of settlement flowed into the succes- 
sive physiographic areas. We must observe also how these areas 
affected the life of the emigrants from the older sections and 
from Europe. 

When one examines these census maps by the side of Major 
Powell's map showing the physiographic regions of the United 
States,! he comprehends the fact that there are American sec- 
tions, neither defined by state lines, nor by the old divisions of 
New England, middle region, south, and west; he perceives 
that, in some respects, the map of the United States may be 
likened to the map of Europe ; that the great physiographic 

1 Physiography of the United States, pp. 98-99. 



THE FKONTIER IN AMEKICAX HISTORY 27 

provinces which have been won by civilization are economically 
and socially comparable to nations of the Old World. The study 
of the stages of frontier advance thus becomes the fascinating 
examination of the successive evolution of peculiar economic 
and social countries, or provinces, each with its own inheritance, 
its own contributions, and individuality. 

Such a study of the moving frontier will show how, after the 
tide-water section was settled below the fall line ^ in the seven- 
teenth century, a combined stream along the Great valley and 
up the southern rivers that drain into the Atlantic, filled in the 
Piedmont region. This process occupied the first half of the 
eighteenth century. In the same period, settlement was ascend- 
ing the Connecticut and the Housatonic in New England, and 
the JVIohawk in New York. These river valleys, walled by the 
mountains and enriched with fluvial soils, became the outlet for 
increasing population, and they directed the flow of settlement. 
Thus two rival currents of settlement were already started by 
the middle of the eighteenth centur}-. New England's stream 
was almost pure native stock. The stream that followed the 
Great valley and occupied the Piedmont was dominantly Scotch- 
Irish and German. 

In vain the king attempted to check this advance by his proc- 
lamation of 1763, forbidding settlements beyond the sources 
of the Atlantic rivers. Just before the Revolution settlement 
reached and followed the " Western Waters " (the streams that, 
rising near the sources of the Atlantic rivers, cut their way 
through the mountains to join the Ohio).^ The limestone soils, 
so welcome to the farmer, were influential in determining this 
advance. The limestone belt tliat floors the northern part of 
the (ireat valley in Penns3'lvania, Maryland, and Virginia had 
tempted settlers along its path and into the Piedmont. The lime- 
stone flooring of the Tennessee valley now attracted settlers to 
eastern Tennessee. Thence, by Cumberland gap, or down the 

^ See Powell, Physiography of the United States, pp. 73-7 J. 

-' On this niovt'inent see Roosevelt, Winning of the West ; Winsor, Mississippi 
Basin ; and Winsor, Westward Mi)vement. See also accounts of travelers, as 
cited in I'eport of American Historical Association for ISUH, p. 203, and in 
Channing and Hart, Guide to American History, pp. 78-86. 



28 SELECTED READINGS IN ECONOMICS 

Ohio from the north, the flood poured into the limestone areas 
of Kentucky and Tennessee, known as the Blue Grass lands. 

By the close of the Revolution settlement in Kentucky and 
Tennessee was almost coterminous with the limestone forma- 
tions, as may be seen by comparing the map of the census of 
1790 with the map showing the distribution of the geologic 
system of the United States. These outlying islands of settle- 
ment, separated by wilderness and mountains from the frontier 
border of the settled area of the coast, had important effects 
upon American diplomatic, military, and economic history. In 
the Revolutionary era the frontier communities beyond the 
mountains attempted to establish states of their own, on demo- 
cratic lines.i The West as a self-conscious section began to 
evolve,^ and the struggle for the navigation of the Mississippi 
accented this western individualism, and made doubtful the 
unity of America. 

By diplomacy, and by Indian wars and cessions, gradually the 
way was opened for the spread of settlement into western New 
York, and into the country north of the Ohio. New England's 
Connecticut valley and Housatonic valley settlers, overflowing 
their confines, poured into central and western New York be- 
tween 1788 and 1820, and New England also began to settle in 
Ohio. The Middle States and the South sent their current of 
settlement into the southern part of the Northwest,^ while set- 
tlement followed the victories of Andrew Jackson into the 
Southwest after the War of 1812. 

By the census of 1820 the settled area included Ohio, south- 
ern Indiana and Illinois, southeastern Missouri, and about one 
half of Louisiana. This settled area had surrounded Indian- 
areas, and the management of these tribes became an object of 
political concern. The frontier region of the time lay along the 

1 See my paper on Western State-Making in tlie Revolutionary Era {Ameri- 
can Historical Review, I, 70, 251); Alden, New Governments West of the Alle- 
ghanies before 1780 {Bulletin of the University of Wisconsin). 

2 Cf. Atlantic Monthly, September, 1896, LXXVIII, 289. 

^Atlantic Monthly, April, 1897, LXXIX, 433 et seq.; Roosevelt, Winning of 
the West, Vol. IV; Thorpe, Constitutional History of the People of the United 
States ; Dwiglit, Travels (1796-1815) [New Haven, 1821]. 



THE FRONTIER IN AMERICAN MISTOKV 29 

Great Lakes, wliere Astor's American Fur Company operated 
in the Indian trade,^ and beyond tlie ^Mississippi, where Indian 
traders extended their activity even to the Rocky mountains ; 
Florida also furnished frontier conditions. The Mississippi 
river region was the scene of typical frontier settlements."^ v The 
era of internal improvements and protective tariffs under the 
home-market idea opened. Its explanation is to be sought in 
the distribution of settlement. 

The rising steam navigation ^ on western waters, the opening 
of the Erie canal, and the westward extension of cotton * cul- 
ture added five frontier states to the Union in this period. 
Grund, writing in 1836, declares: "It appears then that the 
universal disposition of Americans to emigrate to the western 
wilderness, in order to enlarge their dominion over inanimate 
nature, is the actual result of an expansive power which is 
inherent in them, and which by continually agitating all classes 
of society is constantly throwing a large portion of the whole 
population on the extreme confines of the state, in order to 
gain space for its development. Hardly is a new state or terri- 
tory formed before the same principle manifests itself again and 
gives rise to a further emigration ; and so it is destined to go 
on until a physical barrier must finally obstruct its progress." ^ 

1 Turner, Character and Influence of the Indian Trade in Wisconsin {Johns 
Hopkins University Studies, Series ix), pp. 01 ff. 

- Monette, History of the Mississippi Valley, Vol. II ; Flint, Travels and 
Residence in Mississippi ; Flint, Geography and History of the Western States ; 
Abridgment of Debates of Congress, VII, 307, 308, 404 ; Holmes, Account of 
the United States ; Kingdom, America and the British Colonies [London, 1820] ; 
Grund, Americans, II, i, iii, vi (although writing in 1836, he treats of condi- 
tions that grew out of western advance from the era of 1820 to that time); Peck, 
Guide for Emigrants [Boston, 1831] ; Darby, Emigrants' Guide to Western and 
Southwestern States and Territories ; Dana, Geographical Sketches in the 
Western Country ; Kinzie, Waubun ; Keating, Narrative of Long's Expedition ; 
Schoolcraft, Discovery of the Sources of the Mississippi River, Travels in the 
Central Portions of the Mississippi Valley, and Lead Mines of the Missouri ; 
Hurlbut, Chicago Anti(juities ; McKenney, Tour to the Lakes ; Thomas, Travels 
through the Western Country, etc. [Auburn, N.Y., 1819]. Cf. Turner, Rise of 
New West, Vols. V-VIII [New York, 1900]. 

3 Darby, Emigrants' Guide, pp. 272 ff ; Benton, Abridgment of Debates, 
VII, 397." 

* Turner, Hi.se of New West, cliap. iv. '' Grand, Americans, II, 8. 



30 SELECTED READINGS IN ECONOMICS 

^ It was in the period between 1820 and 1850 that the forces 
were at work which differentiated the northwestern frontier 
and the southwestern frontier. In the Southwest the spread 
of cotton culture transformed the pioneer farmer into the great 
planter and slaveholder. In the Northwest, the New England 
and Middle State stream, followed by German immigration, 
took possession of the Great Lake basin, and the pioneer 
farmer type was continued. This section was united to New 
York by the Erie canal and by the later railroads. New Orleans 
ceased to be the outlet of the Northwest. Thus the physio- 
graphic province included in the glaciated area embracing the 
Great Lake basin and New England plateau was brought, by 
the flow of frontier settlement, into economic, political, and 
social unity. In the same period the physiographic province 
of the Gulf plains was settled and unified by extensions of 
the coastal south, under the temptations of the cotton lands. 
The struggle for Texas and the Mexican War were later 
sequences of this movement. 

Prior to this, the Mississippi valley had possessed a consider- 
able degree of social and political homogeneity. By the proc- 
esses just mentioned, however, the sectional division of North 
and South was carried beyond the Alleghenies, and the western 
spirit gave to the political and economic antagonisms between 
the old North and South sections a new rancor and aggressive- 
ness. Both were regions of action, and they furnished the 
radical leaders for their respective sections in the struggle 
that followed. 

^ In the middle of this century the line indicated by the pres- 
ent eastern boundary of Indian Territory, Nebraska, and Kansas 
marked the frontier of the Indian country. ^ Minnesota and 

1 Peck, New Guide to the West, chap, iv [Cincinnati, 1848] ; Parlcman, 
Oregon Trail ; Hall, The West [Cincinnati, 1848] ; Pierce, Incidents of Western 
Travel ; Murray, Travels in North America ; Lloyd, Steamboat Directory [Cin- 
cinnati, 1856]; "Forty Days in a Western Hotel" (Chicago), in Putnam's 
Magazine, December, 1894; Mackay, The Western World, II, ii, iii; Meeker, 
Life in the West; Bogen, Germans in America [Boston, 1851]; Olmstead, Texas 
Journey ; Greeley, Recollections of a Busy Life ; Schouler, History of the 
United States, V, 261-267 ; Peyton, Over the AUeghanies and across the Prairies 



THE FRONTIER IK AMERICAN^ HISTORY 31 

Wisconsin still exhibited frontier conditions,^ but the distinc- 
tive frontier of the period is found in California, where the gold 
discoveries had sent a sudden tide of adventurous miners, in 
Oregon, and in the settlements in Utah.^ As the frontier had 
leaped over the Alleghenies, so now it skipped the Great plains 
and the Rocky mountains ; and in the same way that the 
advance of the frontiersman beyond the Alleghenies had caused 
the rise of important questions of transportation and internal 
improvement, so now the settlers beyond the Rocky mountains 
needed means of communication with the East, and in the fur- 
nishing of these arose the settlement of the Great plains and 
the development of still another kind of frontier life. Rail- 
roads, fostered by land grants, sent an increasing tide of immi- 
grants into the Far West. The United States ai-my "^ fought a 
series of Indian wars in Minnesota, Dakota, and the Indian 
Territory ; cessions made way for settlement. 

By 1880 the settled area had been pushed into northern 
Michigan, Wisconsin, and Minnesota, along Dakota rivers, and 
in the Black hills region, and was ascending the rivers of 
Kansas and Nebraska.'* The development of mines in Colorado 
had drawn isolated frontier settlements into that region, and 
Montana and Idaho were receiving settlers. The frontier was 
found in these mining camps and the ranches of the Great 
plains. The superintendent of the census for 1890 reports, as 
previously stated, that the settlements of the West lie so 

[London, 1870]; Peyton, Suggestions on Railroad Communication with the 
Pacific and the Trade of China and the Indian Islands ; Benton, Highway to the 
Pacific (a speech in the United States Senate, December 16, 1850). Cf. Chit- 
tenden, American Fur Trade. 

1 A writer in the Home ^fissionar!/ [1850], p. 239, reporting Wisconsin con- 
ditions, exclaims: "Think of this, people of the enlightened East! Wiiat an 
example, to come from the very frontiers of civilization!" Hut one of the 
missionaries writes: "In a few years Wisconsin will no longer be considered 
as the We.st, or as an outpost of civilization, any more than western New York, 
or the Western Reserve." 

2 Bancroft (H. H.), History of the Pacific States; and Popular Tribunals; 
Hittell, California; Shinn, "Mining Camps"; Shinn, "Story of the Mine": 
Century Magazine, 1H!»0, 1891. 

^ Rodenbough and Haskin, Army of the I'nited States. 
* See Atlantic Monthly, LX XIX,' 440. 



32 SELECTED READINGS IN ECONOMICS 

scattered over the region that there can no longer be said to 
be a frontier line. 

It will be noted that the frontier boundaries are physio- 
graphically significant. The fall line marked the seventeenth- 
century frontier ; the Allegheny mountains, that of the middle 
of the eighteenth century; the Mississippi, that of the last 
decade of the eighteenth century, and, in part, that of the first 
quarter of the present century. Settlement which had crept up 
the Missouri, the Platte, etc., by the middle of the nineteenth 
century stayed while the rush of gold seekers made a new fron- 
tier on the Pacific coast and in the Rocky mountains. The 
boundary of the arid region (roughly the hundredth meridian) 
marks the most recent frontier. The conquest of the arid West 
^ will be by different processes than that of the other areas of 
western advance, and a different social type may be looked for 
in the region. 

Each great western advance, thus outlined, has been accom- 
panied by a diplomatic or military struggle against rival nations, 
and by a series of Indian wars and cessions. 

V 

The Fkontiee furnishes a Field for Comparative 
Study of Social Development 

At the Atlantic frontier one can study the germs of proc- 
esses repeated at each successive frontier. We have the com- 
plex European life sharply precipitated by the wilderness into 
the simplicity of primitive conditions. The first frontier had 
to meet its Indian question, its question of the disposition of 
the public domain, of the means of intercourse with older set- 
tlements, of the extension of political organization, of religious 
and educational activity. And the settlement of these and 
similar questions for one frontier served as a guide for the 
next. The American student needs not to go to the " prim 
little townships of Sleswick" for illustrations of the law of 
continuity and development. For example, he may study the 
origin of our land policies in the colonial land policy ; he 
may see how the system grew by adapting the statutes to the 



THE FKONTIEK l^' AMEKICAX HISTORY 33 

customs of the successive frontiers.^ He may see how the mining 
experience in the lead regions of Wisconsin, Illinois, and Iowa 
was applied to the mining laws of the Rockies,^ and how our 
Indian policy has been a series of experimentations on succes- 
sive frontiers. Each tier of new states has found in the older 
ones material for its constitution.^ Each frontier has made sim- 
ilar contributions to American character, as will be discussed 
farther on. 

But with all these similarities there are essential differences, 
due to the place element and the time element. It is evident 
that the farming frontier of the Mississippi valley presents dif- 
ferent conditions from the mining frontier of the Rocky moun- 
tains. The frontier reached by the Pacific railroad, surveyed into 
rectangles, guarded by the United States army, and recruited 
by the daily immigrant ship, moves forward in a different way 
and at a swifter pace than the frontier reached by the birch 
canoe or the pack horse. The geologist traces patiently the 
shores of ancient seas, maps their areas, and compares the older 
and the newer. It would be a work worth the historian's labors 
to mark these various frontiers, and in detail compare one with 
another. Not only would there result a more adequate conception 
of American development and characteristics, but invaluable 
additions would be made to the history of society. 

Loria,'* the Italian economist, has urged the study of colonial 
life as an aid in understanding the stages of European develop- 
ment, affirming that colonial settlement is for economic science 
what the mountain is for geology, bringing to light primitive 
stratifications. " America," he says, " has the key to the his- 
torical enigma wliich Europe has sought for centuries in vain, 
and the land which has no history reveals luminously the course 
of universal history." There is much truth in this. The United 
States lies like a huge page in the history of society. Line by 

1 See the suggestive paper by Professor Jesse Macy, "The Institutional 
Beginnings of a Western State." 

2 Shinn, " Mining Camps." 

3 Cf. Thorpe, in A nnals of American Academy of Political and Social Science, 
September, 18!»1 ; Bryce, American Connnonvvealth [1888], II, 08!). 

* Loria, Analisi delia Proprieti\ Capitalista, II, 15. 



34 SELECTED EEADINGS IN ECONOMICS 

line, as we read this continental page from west to east, we 
find the record of social evolution. It begins with the Indian 
and the hunter; it goes on to tell of the disintegration of 
savagery by the entrance of the trader, the pathfinder of civil- 
ization ; we read the annals of the pastoral stage in ranch life ; 
the exploitation of the soil by the raising of unrotated crops of 
corn and wheat in sparsely settled farming communities ; the 
intensive culture of the denser farm settlement; and finally, 
the manufacturing organization with city and factory system.^ 
This page is familiar to the student of census statistics, but 
how little of it has been used by our historians. Particularly 
in eastern states this page is a palimpsest. What is now a 
manufacturing state was in an earlier decade an area of inten- 
sive farming. Earlier yet it had been a wheat area, and still 
earlier the " range " had attracted the cattle herder. Thus Wis- 
consin, now developing manufacture, is a state with varied 
agricultural interests. But earlier it was given over to almost 
exclusive grain raising, like North Dakota at the present time. 
Each of these areas has had an influence in our economic 
and political history ; the evolution of each into a different 
industrial stage has worked political transformations.^ Wiscon- 
sin, to take an illustration, in the days when it lacked varied 
agriculture and complex industrial life, was a stronghold of 
the granger and greenback movements ; but it has undergone 
an industrial transformation, and in the presidential contest of 
1896 Mr. Bryan carried but three counties in the state. Again 
consider the history of Calhoun. His father came with the 
tide of Scotch-Irish pioneers that built their log cabins in the 
Piedmont region of the Carolinas. The young manhood of 
Calhoun was thoroughly western in its nationalistic and loose- 
construction characteristics. But the extension of cotton cul- 
ture to the Piedmont, following the industrial revolution in 

1 Cf. Observations on the N. A. Land Company, pp. 15, 144 [London, 1796] ; 
Logan, History of Upper S. C, I, 149-151 ; Turner, Indian Trade in Wiscon- 
sin, p. 18 ; Peck, New Guide for Emigrants, cliap. iv [Boston, 1837] ; Com- 
pendium, Eleventh Census, xl. 

2 Turner, Introduction to Libby's Ratification of the American Constitution 
[Bull, of Univ. of Wis., Econ., Pol. Sci., and Hist. Series, Vol. I]. 



THE FRONTIER IX AMERICAN HISTORY 35 

England, superseded the pioneer by the slave-holding planter. 
Calhoun's ideas changed with his section, until he became the 
chief prophet of southern sectionalism and slavery.^ 

Among isolated coves in the Appalachian mountains, and in 
other out-of-the-way places, the frontier has survived, like a 
fossil, in a more recent social formation. The primitive economic 
conditions of these mountains of Tennessee, or of Georgia, for 
instance, enable us to comprehend some of the characteristics 
of the frontier of earlier days. In the American Journal of Soci- 
oloi/y for July, 1898, under the title "A Retarded Frontier," 
Professor Vincent has described such a community. 

The Atlantic frontier was compounded of fisherman, fur 
trader, miner, cattle raiser, and farmer. Excepting the fisher- 
man, each type of industry was on the march toward the west, 
drawn by an irresistible attraction. Each passed in successive 
waves across the continent. Stand at Cumberland gap and 
watch the procession of civilization, marching single file — the 
buffalo following the trail to the salt springs, the Indian, the fur 
trader and hunter, the cattle raiser, the pioneer farmer — and 
the frontier has passed by. Stand at South pass in the Rockies 
a century later and see the same procession with wider intervals 
between. The unequal rate of advance compels us to distinguish 
the frontier into the trader's frontier, the rancher's frontier, or 
the miner s frontier, and the farmer's frontier. When the mines 
and the cow pens were still near the fall line the trader's pack 
trains were tinkling across the Alleghenies, and the French on 
the Great Lakes were fortifying their posts, alarmed by the Brit- 
ish trader's birch canoe. When the trappers scaled the Rockies 
the farmer was still near the mouth of the Missouri. 

The Indian Trader's Frontier 

Why was it that the Indian trader passed so rapidly across 
the continent? What effects followed from the trader's frontier? 
The trade was coeval with American discovery. The Norsemen, 
Vespuccius, Verrazani, Hudson, John Smith, all traflicked for 

^ Turner, Rise of New West, for other illustrations, and cf. Atlantic Monthly, 
April, 1807, LXXIX, 441-443. 



36 SELECTED KEADINGS IN ECONOMICS 

furs. The Plymouth pilgrims settled in Indian cornfields, and 
their first return cargo was of beaver and lumber. The records 
of the various New England colonies show how steadily explo- 
ration was carried into the wilderness by this trade. What is 
true for New England is, as would be expected, even plainer 
for the rest of the colonies. All along the coast from Maine to 
Georgia the Indian trade opened up the river courses. Steadily 
the trader passed westward, utilizing the older lines of French 
trade. The Ohio, the Great Lakes, the Mississippi, the Mis- 
souri, and the Platte, the lines of western advance, were 
ascended by traders. They found the passes in the Rocky 
mountains and guided Lewis and Clark,i Fremont, and Bid- 
well. The explanation of the rapidity of this advance is con- 
nected with the effects of the trader on the Indian. The trading 
post left the unarmed tribes at the mercy of those that had pur- 
chased firearms, — a truth which the Iroquois Indians wrote in 
blood, and so the remote and unvisited tribes gave eager wel- 
come to the trader. " The savages," wrote La Salle, " take 
better care of us French than of their own children ; from us 
only can they get guns and goods." This accounts for the 
trader's power and the rapidity of his advance. Thus the dis- 
integrating forces of civilization entered the wilderness. Every 
river valley and Indian trail became a fissure in Indian society, 
and so that society became honeycombed. Long before the 
pioneer farmer appeared on the scene, primitive Indian life had 
passed away. The farmers met Indians armed with guns. The 
trading frontier, while steadily undermining Indian power by 
making the tribes ultimately dependent on the whites, yet, 
through its sale of guns, gave to the Indians increased power 
of resistance to the farming frontier. French colonization was 
dominated by its trading frontier, English colonization by its 
farming frontier. There was an antagonism between the two 
frontiers as between the two nations. Said Duquesne to the 
Iroquois : " Are you ignorant of the difference between the 
king of England and the king of France? Go see the forts 

1 But Lewis and Clark were the first to explore the route from the Missouri 
to the Columbia. 



THE FEONTIEIJ IX AMERICAN HISTORY 37 

that our king has establislied and you will see that you can 
still hunt under their very walls. They have been placed for 
your advantage in places which you frequent. The English, 
on the contrary, are no sooner in possession of a place than the 
game is driven away. The forest falls before them as they 
advance, and the soil is laid bare so that you can scarce find 
the wherewithal to erect a shelter for the night." 

And yet, in spite of this opposition of the interests of the 
trader and the farmer, the Indian trade pioneered the way for 
civilization. The buffalo trail became the Indian trail, and this 
became the trader's " trace "' ; the trails widened into roads, and 
the roads into turnpikes, and these in turn were transformed 
into railroads. The same origin can be shown for important 
railroads of the South, the Far West, and the Dominion of 
Canada.^ The trading posts reached by these trails were on 
the sites of Indian villages which had been placed in positions 
suggested by nature ; and these trading posts, situated so as 
to command the water systems of the country, have grown 
into such cities as Albany, Pittsburg, Detroit, Chicago, St. 
Louis, Council Bluffs, and Kansas City. Thus civilization in 
America has followed the arteries made by geology, pouring an 
ever richer tide through them, until at last the slender paths of 
aboriginal intercourse have been broadened and interwoven into 
the complex mazes of modern commercial lines ; the wilderness 
has been interpenetrated by lines of civilization growing ever 
more numerous. It is like the steady growth of a complex 
nervous system for the originally simple, inert continent. If 
one would understand why we are to-day one nation rather 
than a collection of isolated states, he must study this economic 
and social consolidation of the country. In this progress from 
savage conditions lie topics for the evolutionist.^ 

1 The later railroads frequently deviated in important respects from the 
exact line of the old trails ; but the statement is true in general. See Narrative 
and Critical History of America, VIII, 10 ; Sparks, Washinj^ton's Works, IX, 
.303, 327 ; Logan, History of Upper South Carolina, Vol. I ; McDonald, Life of 
Kenton, p. 72. 

2 On the effect of the fur trade in opening the routes of migration, see the 
author'.s Character and Influence of the Indian Trade in Wi.scon.siii. 



38 SELECTED READINGS IN ECONOMICS 

The effect of the Indian frontier as a consolidating agent in 
our history is important. From the close of the seventeenth 
century various intercolonial congresses have been called to 
treat with Indians and establish common measures of defense. 
Particularism was strongest in colonies with no Indian frontier. 
This frontier stretched along the western border like a cord of 
union. The Indian was a common danger, demanding united 
action. Most celebrated of these conferences was the Albany 
congress of 1754, called to treat with the Six Nations, and to 
consider plans of union. Even a cursory reading of the plan 
proposed by the congress reveals the importance of the frontier. 
The powers of the general council and the officers were, chiefly, 
the determination of peace and war with the Indians, the regu- 
lation of Indian trade, the purchase of Indian lands, and the 
creation and government of new settlements as a security 
against the Indians. It is evident that the unifying tendencies 
of the Revolutionary period were facilitated by the previous 
cooperation in the regulation of the frontier. In this connec- 
tion may be mentioned the importance of the Indian frontier in 
the modification of western institutions and character, and par- 
ticularly, as a military training school, keeping alive the power 
of resistance to aggression, and developing the stalwart and 
rugged qualities of the frontiersman. If the reader will com- 
pare the names of the officers whose exploits at Santiago and 
at Manila are now in everybody's mouth, with the names of 
the ofiicers in the Indian fighting of the United States, he will 
understand better the importance of this aspect of the frontier.^ 

The Ranchee's Frontier 

It would not be possible in the limits of this paper to trace 
the other frontiers across the continent. At the close of the 
seventeenth century in Virginia we find vast droves of wild 

1 Colonel Leonard Wood, for example, in the Geronimo campaign under 
Lawton in 1886, added to his duties as surgeon the command of the infantry. 
Cf. Century Magazine, July, 1891, p. 369, and Scribner^s Magazine, January, 
1899, pp. 3-20. 



THE FRONTIER L\ AMERICAN HISTORY 39 

horses and cattle, with typical ranch life and customs. Similar 
conditions existed in other parts of the coast area.^ Travelers 
of the eighteenth century found the "cow pens" among the 
canebrakes and pea-vine pastures of the South, and the " cow 
drivers " took their droves to Charleston, Philadelphia, and 
New York.2 Travelers at the close of the War of 1812 met 
droves of more than a thousand cattle and swine from the 
interior of Ohio going to Pennsylvania to fatten for the Phila- 
delphia market.^ The ranges of the Great plains, with ranch 
and cowboy and nomadic life, are things of yesterday and of 
to-day.* The experience of the Carolina cow pens guided the 
ranchers of Texas. One element favoring the rapid extension 
of the rancher's frontier is the fact that in a remote country 
lacking transportation facilities the product must be in small 
bulk, or must be able to transport itself, and the cattle raiser 
could easily drive his product to market. The effect of these 
great ranches on the subsequent agrarian history of the locali- 
ties in which they existed should be studied. 

The Farmer's Frontier 

The maps of the census reports show an uneven advance of 
the farmer's frontier, with tongues of settlement pushed forward 
and with indentations of wilderness. In part this is due to 
Indian resistance, in part to the location of river valleys and 
passes, in part to the unequal force of the centers of frontier 
attraction. Among the important centers of attraction may be 
mentioned the following : fertile and favorably situated soils, 
salt springs, mines, and army posts. 

1 Cf. Bruce, Economic History of Virginia in the Seventeenth Century, T, 
47.3-477, 540; Weeden, Economic and Social History of New England, I, 100, 
128 ; Doyle, I'uritan Colonies, II, 19-23, 4(5-47. 

2 Lodge, English Colonies, p. 152 and citations ; Logan, History of Upper 
South Carolina, I, 151. 

3 Flint, Recollections, p. 9. 

* See Wister, "Evolution of the Cow Puncher," in Harper's Magazine, 
September, 1895 ; Hough, Story of the Cow Boy ; Roosevelt, Ranch Life and 
the Hunting Trail. 



40 SELECTED READINGS IN ECONOMICS 

Army Posts 

The frontier army post, serving to protect the settlers from 
the Indians, has also acted as a wedge to open the Indian 
country, and has been a nucleus for settlement.^ In this con- 
nection mention should also be made of the government military 
and exploring expeditions in determining the lines of settlement. 
But all the more important expeditions were greatly indebted 
to the earliest pathmakers, the Indian guides, the traders and 
trappers, and the French voyageurs, who were inevitable parts 
of governmental expeditions from the days of Lewis and Clark. 
Each expedition was an epitome of the previous factors in 
western advance. 

Salt Springs 

In an interesting monograph, Victor Hehn^ has traced the 
effect of salt upon early European development, and has 
pointed out how it affected the lines of settlement and the 
form of administration. A similar study might be made for the 
salt springs of the United States. The early settlers were tied 
to the coast by the need of salt, without which they could not 
preserve their meats or live in comfort. Writing in 1752, 
Bishop Spangenburg says of a colony for which he was seeking 
lands in North Carolina : " They will require salt & other neces- 
saries which they can neither manufacture nor raise. Either 
they must go to Charleston, which is 300 miles distant. . . . 
Or else they must go to Boling's Point in V^ on a branch of 
the James & is also 300 miles from here ... Or else they 
must go down the Roanoke — I know not how many miles — 
where salt is brought up from the Cape Fear." ^ This may serve 
as a typical illustration. An annual pilgrimage to the coast for 
salt thus became essential. Taking flocks or furs and ginseng 
root, the early settlers sent their pack trains after seeding time 

1 Cf. Hening's Statutes, II, 433, 448 ; III, 204 ; Benton's View, I, 102 ; II, 
70, 167; Monette, Mississippi Valley, I, 344. 

2 Hehn, Das Salz [Berlin, 1873]. 

3 Colonial Records of North Carolina, V, 3. 



THE FRONTIER IN A.AIERICAN JIISTORV 41 

each year to the coast.^ This proved to be an important educa- 
tional influence, since it was almost the only way in which the 
pioneer learned what was going on in the East. But when dis- 
covery was made of the salt springs of the Kanawha, and the 
Holston, and Kentuck}',^ and central New York, the West began 
to be freed from dependence on the coast. It was in part the 
effect of finding these salt springs that enabled settlement to 
cross the mountains. 

Land 

The exploitation of the beasts took hunter and trader to the 
West, the exploitation of the grasses took the rancher West, and 
the exploitation of the virgin soil of the river valleys and prairies 
attracted the farmer. Good soils have been the most continuous 
attraction to the farmer's frontier. When the science of physi- 
ography is more completely related to the study of our history 
it will be seen how dependent that history was upon the forces 
that carved out the limestone valleys and deposited alluvial soils 
along the river courses. The land hunger of the Virginians drew 
them down the rivers into Carolina, in early colonial days ; the 
pursuit of good soil took the Massachusetts men to Pennsylvania 
and to New York. As the eastern lands were taken up migration 
flowed across them to the West. Daniel Boone, the great back- 
woodsman, who combined the occupations of hunter, trader, cattle 
raiser, farmer, and surveyor — learning, probably from the traders, 
of the fertility of the lands on the upper Yadkin, where the 
traders were w^ont to rest as they took their way to the Indians 
— left his Pennsylvania home with his father, and passed down 
the Great Valley road to that stream. Learning from a trader 
whose posts w'ere on the Red river in Kentucky of its game 
and rich pastures, he pioneered the way for the farmers to that 
region. Thence he passed to the frontier of JNIissouri, where his 
settlement was long a landmark on the frontier. Here again he 

1 Findlcy, History of the Insurrection in the Four Western Counties of 
Pennsylvania in the Year 1704, p. 35 [Philadelphia, 17St(5]. 

2 See also McGee's paper on potable sjirings, as affecting settlement, in the 
Fourteenth Annual Report of the United States Geological Survey, Part II, p 9. 



42 SELECTED READINGS IN ECONOMICS 

helped to open the way for civilization, finding salt licks and 
trails and land. His son was among the earliest trappers in the 
passes of the Rocky mountains, and his party is said to have been 
the first to camp on the present site of Denver. His grandson, 
Colonel A. J. Boone of Colorado, was a power among the Indians 
of the Rocky mountains, and was appointed an agent by the gov- 
ernment. Kit Carson's mother was a Boone.^ Thus this family 
epitomizes the backwoodsman's advance across the continent. 

The farmer's advance came in a distinct series of waves. In 
Peck's " New Guide to the West," published in Boston in 1837, 
occurs this suggestive passage : 

/ Generally, in all the western settlements, three classes, like the waves of 
the ocean, have rolled one after the other. First comes the pioneer, who 
depends for the subsistence of his family chiefly upon the natural growth 
of vegetation, called the " range," and the proceeds of hunting. His imple- 
ments of agriculture are rude, chiefly of his own make, and his efforts 
directed mainly to a crop of corn and a " truck patch." The last is a rude 
garden for growing cabbage, beans, corn for roasting ears, cucumbers, and 
potatoes. A log cabin, and, occasionally, a stable and corncrib, and a field 
of a dozen acres, the timber girdled or " deadened," and fenced, are enough 
for his occupancy. It is quite immaterial whether he ever becomes tlie 
owner of the soil. He is the occupant for the time being, pays no rent, and 
feels as independent as the " lord of the manor." With a horse, cow, and 
one or two breeders of swine, he strikes into the woods with his family, 
and becomes the founder of a new country, or perhaps state. He builds 
his cabin, gathers around him a few other families of similar tastes and 
habits, and occupies until the range is somewhat subdued, and hunting a 
little precarious, or, which is more frequently the case, till the neighbors 
crowd around, roads, bridges, and fields annoy him, and he lacks elbow 
room. The preemption law enables him to dispose of his cabin and corn- 
field to the next class of emigrants ; and, to employ his own figures, he 
" breaks for the high timber," " clears out for the New Purchase," or 
migrates to Arkansas or Texas, to work the same process over. 

The next class of emigrants purchase the lands, add field to field, clear 
out the roads, throw rough bridges over the streams, put up hewn log 
houses with glass windows and brick or stone chimneys, occasionally plant 
orchards, build mills, schoolhouses, etc., and exhibit the picture and forms 
of plain, frugal, civilized life. 

Another wave rolls on. The men of capital and enterprise come. The 
settler is ready to sell out and take the advantage of the rise in property, 

1 Hale, Daniel Boone (pamphlet). 



THE FKONTIEK 1^' AMERICAN H18TUKV 43 

push farther into the interior, and become, himself, a man of capital and 
enterprise in turn. The small village rises to a spacious town or city ; sub- 
stantial edifices of brick, extensive fields, orchards, gardens, colleges, and 
churches are seen. Broadcloths, silks, leghorns, crapes, and all the refine- 
ments, luxuries, elegancies, frivolities, and fashions are in vogue. Thus 
wave after wave is rolling westward ; the real Eldorado is still further on. 

A portion of the two fii'st classes remain stationary amidst the general 
movement, improve their habits and condition, and rise in the scale of 
society. 

The writer has traveled much amongst the first class, the real pioneers. 
He has lived many years in connection with second grade; and now the 
third wave is sweeping over large districts of Indiana, Illinois, and ilissouri. 
Migration has become almost a habit in the "West. Hundreds of men can 
be found, not over fifty years of age, who have settled for the fourth, fifth, 
or sixth time on a new spot. To sell out and remove only a few hundred 
miles makes up a portion of the variety of backwoods life and manners.^ • 

Omitting those of the pioneer farmers who move from the 
love of adventure, the advance of the more steady farmer is easy 
to understand. Obviously the immigrant was attracted by the 
cheap lands of the frontier, and even the native farmer felt their 
influence strongly. Year by year the farmers who lived on soil 
whose returns were diminished by unrotated crops were offered 
the virgin soil of the frontier at nominal prices. Their growing 
families demanded more lands, and these were dear. The com- 
petition of the unexhausted, cheap, and easily tilled prairie lands 
compelled the farmer either to go West and continue the ex- 
haustion of the soil on a new frontier, or to adopt intensive 
culture. Thus the census of 1890 shows, in the Northwest, 
many counties in which there is an absolute or a relative 
decrease of population. These states have been sending farmers 
to advance the frontier on the plains, and have themselves begun 
to turn to intensive farming and to manufacture. A decade 
before this, Ohio had shown the same transition stage. The 

1 Cf. Bally, Tour in the Unsettled Parts of North America, pp. 217-210 [Lon- 
don, 1850], where a similar analysis is made for 1706. See also Collot, .Journey 
in North America, p. 100 [Paris, 1820] ; Observations on the North American 
Land Conii)any, pp. xv, 144 [London, 170(5]; Logan, History of Upper South 
Carolina ; Murat. Moral and Political Sketch of the United State.s [London, 183;^] 
(also under the title America and Americans [New York, 1H40])-; Dwighl, 
Travels, II, 450 ; IV, 32 ; Koosevelt, Winning of the West, III, v. 



44 SELECTED READINGS IN ECONOMICS 

demand for land and the love of wilderness freedom drew the 
frontier ever onward. The sectional aspects of the agricultural 
frontier demand historical study. The United States Depart- 
ment of Agriculture has published two bulletins (Nos. 10 and 
11, of the Division of Biological Survey), which give maps 
showing the Life Zoyies and Crop Zones of the United States, 
and the Greographic Distributio7i of Cereals in North America. 
The census volume on agriculture contains other maps showing 
the distribution of various crops and products. As the farmer's 
frontier advanced westward it reached and traversed these 
natural physiographic areas. The history of the farmer's frontier 
is in part a history of the struggle between these natural condi- 
tions and the custom of the farmer to raise the crops and use 
the methods of the other regions which he has left. The tragedy 
of the occupation of the arid tract, where the optimism of the 
pioneer farmer met its first rude rebuff by nature itself, is a 
case in point. 

Having now roughly outlined the various kinds of frontiers, 
and their modes of advance, chiefly from the point of view of 
the frontier itself, we next inquire what were the influences on 
the East and on the Old World. A rapid enumeration of some 
of the more noteworthy effects is all that I have space for. 

« 

Composite Nationality 

First, we note that the frontier promoted the formation of a 
composite nationality for the American people. The coast was 
preponderantly English, but the later tides of continental immi- 
gration flowed across to the free lands. This was the case from 
the early colonial days. The Scotch-Irish and the Palatine- 
Germans, or " Pennsylvania Dutch," furnished the dominant 
element in the stock of the colonial frontier. With these peoples 
were also the freed indented servants, or redemptioners, who, at 
the expiration of their time of service, passed to the frontier. 
Governor Spotswood, of Virginia, writes, in 1717, '' The inhab- 
itants of our frontiers are composed generally of such as have 
been transported hither as servants, and, being out of their time, 



THE FKONTIEK IX AMERICAN illSTOKY 45 

settle themselves where land is to be taken up and that will 
produce the necessarys of life with little labour." ^ Very gen- 
erally these redemptioners were of non-English stock. In the 
crucible of the frontier the immigrants were Americanized, 
liberated, and fused into a mixed race, English in neither nation- 
ality nor characteristics. The process has gone on from the 
early days to our own. Burke and other writers in the middle 
of the eighteenth century believed that Pennsylvania^ was 
" threatened with the danger of being wholly foreign in lan- 
guage, manners, and perhaps even inclinations." The German 
and Scotch-Irish elements in the frontier of the South were only 
less great. In the middle of the present century the German 
element in Wisconsin was already so considerable that leading 
publicists looked to the creation of a German state out of the 
commonwealth by concentrating their colonization.-^ By the 
census of 1890 South Dakota had a percentage of persons of 
foreign parentage to total population of sixty ; Wisconsin, 
seventy-three ; Minnesota, seventy-five ; and North Dakota, 
seventy-nine. Such examples teach us to beware of misinterpret- 
ing the fact that there is a common English speech in America 
into a belief that the stock is also English. 

Industrial Independence 

In another way the advance of the frontier decreased our 
dependence on England. The coast, particularly of the South, 
lacked diversified industries, and was dependent on England for 
the bulk of its supplies. In the South there was even a depend- 
ence on the northern colonies for articles of food. Governor 
Glenn, of South Carolina, writes in the middle of the eighteenth 
century : " Our trade with New York and Philadelphia was of 
this sort, draining us of all the little money and bills we could 
gather from other places for their bread, flour, beer, hams, bacon, 
and other things of their produce, all which, except beer, our 

^ Spotswood Papers, in Collections of Virginia Historical Societij, Vols. I, II. 

2 Rurke, European Settlements, etc. [1765 ed.]. II, 200. 

3 Evere.st, in Wisconsin Ilistoriiul Collections. XII, 7 If. 



46 SELECTED READINGS IN ECONOMICS 

new townships began to supply us with, which are settled with 
very industrious and thriving Germans. This no doubt dimin- 
ishes the number of shipping and the appearance of our trade, 
but it is far from being a detriment to us." ^ Before long 
the frontier created a demand for merchants. As it retreated 
from the coast it became less and less possible for England to 
bring her supplies directly to the consumers' wharfs, and carry 
away staple crops, and staple crops began to give way to diver- 
sified agriculture for a time. The effect of this phase of the" 
frontier action upon the northern section is perceived when 
we realize how the advance of the frontier aroused seaboard 
cities like Boston, New York,- and Baltimore, to engage in 
rivalry for what Washington called "the extensive and valu- 
able trade of a rising empire." 

Effects ok National Legislation 

The legislation which most developed the powers of the na- 
tional government, and played the largest part in its activity, 
was conditioned on the frontier. Writers have discussed the sub- 
jects of tariff, land, and internal improvement as subsidiary to 
the slavery question. But when American history comes to be 
rightly viewed it will be seen that the slavery question is an 
incident. In the period from the end of the first half of the 
present century to the close of the Civil War slavery rose to 
primary, but far from exclusive, importance. But this does not 
justify Dr. von Hoist (to take an example) in treating our con- 
stitutional history in its formative period down to 1828 in a 
single volume, giving six volumes chiefly to the history of 
slavery from 1828 to 1861, under the title "Constitutional 
History of the United States." The growth of nationalism and 
the evolution of American political institutions were dependent 
on the advance of the frontier. Even so recent a writer as 
Rhodes, in his history of the United States since the compro- 
mise of 1850, has treated the legislation called out by the west- 
ern advance as incidental to the slavery struggle. 

1 Weston, Documents connected with History of South Carolina, p. 61. 



THE FRONTIER IX AMERICAN HISTORY 47 

This is a wrong perspective. The pioneer needed the goods 
of the coast, and so the grand series of internal improve- 
ment and railroad legislation began, with potent nationalizing 
effects. Over internal improvements occurred great debates, in 
which grave constitutional questions were discussed. Sectional 
groupings appear in the votes, profoundly significant for the 
historian.^ Loose construction increased as the nation marched 
westward.^ But the West was not content with bringing the 
farm to the factory. Under the lead of Clay — " Harry of 
the West " — protective tariffs were passed, with the cry of 
bringing the factory to the farm. The disposition of the public 
lands was a third important subject of national legislation 
influenced by the frontier. 

Effects on Institutions 

It is hardly necessary to do more than mention the fact 
that the West was a field in which new political institutions 
were to be created. It offered a wide opportunity for specu- 
lative creation and for adjustment of old institutions to new 
conditions. The study of the evolution of western institutions 
shows how slight was the proportion of actual theoretic inven- 
tion of institutions ; but there is abundance of opportunity for 
study of the sources of the institutions actually chosen, the 
causes of the selection, the degree of transformation by the 
new conditions, and the new institutions actually produced 
by the new environment. 

The Public Domain 

The public domain has been a force of profound importance 
in the nationalization and development of the government. The 
effects of the struggle of the landed and the landless states, and 

1 Cf. Libby, "Plea for the Study of Votes in Congress," in Report of 
American Historical Association for 1896, p. 223 ; Turner, Kise of tlie New 
West, Introduction, 

- See, for example, the speech of Clay, in the House of Representatives, 
January 30, 1824. 



48 SELECTED EEADINGS IN ECONOMICS 

of the ordinance of 1787, need no discussion.^ Administratively 
the frontier called out some of the highest and most vitalizing 
activities of the general government. The purchase of Louisi- 
ana v^^as perhaps the constitutional turning point in the history 
of the republic, inasmuch as it afforded both a new area for 
national legislation and the occasion of the downfall of the 
policy of strict construction. But the purchase of Louisiana 
was called out by frontier needs and demands. As frontier 
states accrued to the Union the national power grew. In a 
speech on the dedication of the Calhoun monument, Mr. Lamar 
explained, " In 1789 the states were the creators of the federal 
government; in 1861 the federal government was the creator 
of a large majority of the states." 

When we consider the public domain from the point of view 
of the sale and disposal of the public lands,^ we are again 
brought face to face with the frontier. The policy of the United 
States in dealing with its lands is in sharp contrast with the 
European system of scientific administration. Efforts to make 
this domain a source of revenue, and to withhold it from emi- 
grants in order that settlement might be compact, were in vain. 
The jealousy and the fears of the East were powerless in the 
face of the demands of the frontiersmen. John Quincy Adams 
was obliged to confess : " My own system of administration, 
which was to make the national domain the inexhaustible fund 
for progressive and unceasing internal improvement, has failed." 
The reason is obvious ; a system of administration was not what 
the West demanded ; it wanted land. Adams states the situa- 
tion as follows : " The slaveholders of the South have bought the 
cooperation of the western country by the bribe of the western 
lands, abandoning to the new western states their own propor- 
tion of the public property and aiding them in the design of 
grasping all the lands into their own hands. Thomas H. 

1 See the admirable monograph by Professor H. B. Adams, Maryland's 
Influence on the Land Cessions ; and also President Welling, in Papers Ameri- 
can Historical Association, III, 411; Barrett, Evolution of the Ordinance 
of 1787. 

2 Sanborn, "Congressional Land Grants in Aid of llailroads," Bulletin of 
the University of Wisconsin ; Donaldson, Public Domain. 



THE FRONTIER IN AMERICAN HISTORY 49 

Benton was the author of this system, which he brought for- 
ward as a substitute for the American system of Mr. Clay, 
and to supplant him as the leading statesman of the West. 
Mr. Clay, by his tariff compromise with Mr. Calhoun, aban- 
doned his own American system. At the same time he brought 
forward a plan for distributing among all the states of the 
Union the proceeds of the sales of the public lands. His bill 
for that purpose passed both houses of Congress, but was 
vetoed by President Jackson, who, in his annual message of 
December, 1832, formally recommended that all public lands 
should be gratuitously given away to individual adventurers 
and to the states in which the lands are situated.^ 

" No subject," said Henry Clay, " which has presented itself 
to the present, or perhaps any preceding, Congress, is of greater 
magnitude than that of the public lands." When we consider 
the far-reaching effects of the government's land policy upon 
political, economic, and social aspects of American life, we are 
disposed to agree with him. But this legislation was framed 
under frontier influences, and under the lead of western states- 
men like Benton and Jackson. Said Senator Scott, of Indiana, 
in 1841: "I consider the preemption law merely declaratory 
of the custom or common law of the settlers." 

National Tendencies of the Frontier 

It is safe to say that the legislation with regard to land, tariff, 
and internal improvements — the American system of the 
nationalizing Whig party — was conditioned on frontier ideas 
and needs. But it was not merely in legislative action that the 
frontier worked against the sectionalism of the coast. The eco- 
nomic and social characteristics of the frontier worked against 
sectionalism. The men of the frontier had closer resemblances 
to the middle region than to either of the other sections. Penn- 
sylvania had been the seed plot of southern frontier emigration, 
and although she passed on her settlers along the Great valley 
into the west of A''irginia and the Carolinas, yet the industrial 
1 J. Q. Adams, .Memoirs, IX, 247, 248. 



50 SELECTED EEADINGS IN ECONOMICS 

society of these southern frontiersmen was always more like 
that of the middle region than like that of the tide-water por- 
tion of the South, which later came to spread its industrial type 
throughout the South. 

The middle region, entered by New York harbor, was an 
open door to all Europe. The tide-water part of the South rep- 
resented typical Englishmen, modified by a warm climate and 
servile labor, and living in baronial fashion on great plantations ; 
New England stood for a special English movement, — Puritan- 
ism. The middle region was less English than the other sections. 
It had a wide mixture of nationalities, a varied society, the 
mixed town and county system of local government, a varied 
economic life, many religious sects. In short, it was a region 
mediating between New England and the South, and the East 
and the West. It represented the composite nationality which 
the contemporary United States exhibits, that juxtaposition of 
non-English groups, occupying a valley or a little settlement, and 
presenting reflections of the map of Europe in their variety. It 
was democratic and non-sectional, if not national; "easy, tolerant, 
and contented"; rooted strongly in material prosperity. It was 
typical of the modern United States. It Avas least sectional, not 
only because it lay between North and South, but also because 
with no barriers to shut out its frontiers from its settled region, 
and with a system of connecting water ways, the middle region 
mediated between East and West as well as between North and 
South. Thus it became the typically American region. Even 
the New Englander, who was shut out from the frontier by the 
middle region, tarrying in New York or Pennsylvania on his west- 
ward march, lost the acuteness of his sectionalism on the way.^ 

Moreover, it must be recalled that the western and central 
New England settler who furnished the western movement was 
not the typical tide- water New Englander: he was less conserv- 
ative and contented, more democratic and restless. 

The spread of cotton culture into the interior of the South 
finally broke down the contrast between the " tide-water " region 

1 Author's article in The ^gis [Madison, Wis.], November 4, 1892, and 
Atlantic Monthly, September, 1896, p. 294, and April, 1897, pp. 436, 441, 442. 



THE FRONTIER IX A.MERICAX HISTORY 51 

and the rest of the South, and based southern interests on 
slavery. Before this process revealed its results, the western 
portion of the South, which was akin to Pennsylvania in stock, 
society, and industry, showed tendencies to fall away from the 
faith of the fathers into internal improvement legislation and 
nationalism. In the Virginia convention of 1829-1830, called to 
revise the constitution, Mr. Leigh, of Chesterfield, one of the 
tide-water counties, declared : 

One of the main causes of discontent which led to this convention, that 
which had the strongest influence in overcoming our veneration for the 
work of our fathers, wliich taught us to contemn the sentiments of Henry 
and ^lason and Pendleton, which weaned us from our reverence for the 
constituted authorities of the state, was an overweening passion for inter- 
nal improvement. I say this with perfect knowledge, for it has been 
avowed to me by gentlemen from the West over and over again. And let 
me tell the gentleman from Albemarle (Mr. Gordon) that it has been 
another principal object of those who set this ball of revolution in motion, 
to overturn the doctrine of state rights, of which Virginia has been the 
very pillar, and to remove the barrier she has interposed to the interference 
of the federal government in that same work of internal imjirovement, by 
so reorganizing the legislature that Virginia, too, may be hitched to the 
federal car. 

It was this nationalizing tendency of the West that trans- 
formed the democracy of Jeffeison into the national republican- 
ism of Monroe and the democracy of Andrew Jackson. The 
West of the War of 1812, the West of Clay and Benton and 
Harrison and Andrew Jackson, shut off by the Middle States 
and the mountains from the coast sections, had a solidarity 
of its own with national tendencies.^ On the tide of the Father 
of Waters, North and South met and mingled into a nation. 
Interstate migration went steadily on, — a process of cross- 
fertilization of ideas and institutions. The fierce struggle of the 
sections over slavery on the western frontier does not diminish 
the truth of this statement ; it proves the truth of it. Slavery 
was a sectional trait that would not down, but in the West it 
could not remain sectional. It \vhs the greatest of frontiers- 
men wlio declared : " I believe this government cannot endure 

1 Cf. Roosevelt, Thomas Benton, chap. i. 



52 SELECTED READINGS IN ECONOMICS 

permanently half slave and half free. It will become all of one 
thmg or all of the other." Nothing works for nationalism like 
intercourse within the nation. Mobility of population is death 
to localism, and the western frontier worked irresistibly in 
unsettling population. The effects reached back from the 
frontier^ and affected profoundly the Atlantic coast and even 
the Old World. 

Growth of Democracy 

But the most important effect of the frontier has been in the 
promotion of democracy here and in Europe. As has been indi- 
cated, the frontier is productive of individualism. Complex 
society is precipitated by the wilderness into a kind of primitive 
organization based on the family. The tendency is anti-social. 
It produces antipathy to control, and particularly to any direct 
control. The taxgatherer is viewed as a representative of oppres- 
sion. Professor Osgood, in an able article,^ has pointed out that 
the frontier conditions prevalent in the colonies are important 
factors in the explanation of the American Revolution, where 
individual liberty was sometimes confused with absence of all 
effective government. The same conditions aid in explaining 
the difficulty of instituting a strong government in the period 
of the Confederacy. The frontier individualism has from the 
beginning promoted democracy. 

The frontier states that came into the Union in the first 
quarter of a century of its existence came in with democratic 
suffrage provisions, and had reactive effects of the highest im- 
portance upon the older states whose peoples were being attracted 
there. An extension of the franchise became essential. It was 
western New York that forced an extension of suffrage in the 
constitutional convention of that state in 1821; and it was 
western Virginia that compelled the tide-water region to put a 
more liberal suffrage provision in the constitution framed in 
1830, and to give to the frontier region a more nearly propor- 
tionate representation with the tide-water aristocracy. The rise 

1 Political Science Quarterly, II, 457 ; Sumner, Alexander Hamilton, chaps, 
ii-vii; Turner, in. Atlantic Monthly, January, 1903. 



THE FllOXTlKK IX AMEKKAX IILSTOKY 53 

of democracy as an effective force in the nation came in with 
western preponderance under Jackson and William Henry Jlar- 
rison, and it meant the triumph of the frontier — with all of its 
good and with all of its evil element.^ An interesting illustra- 
tion of the tone of frontier democracy in 1830 comes from the 
same debates in the Virginia convention already referred to. 
A representative from western Virginia declared : 

But, sir, it is not the increase of population in the West which this gen- 
tleman ought to fear. It is the energy which the mountain breeze and west- 
ern habits impart to those emigrants. They are regenerated, politically I 
mean, sir. They soon become icoi-kitic/ politicians ; and the difference, sir, 
between a talking and a icorking politician is immense. The Old Dominion 
has long been celebrated for producing great orators ; the ablest metaphy- 
sicians in policy ; men that can si)lit hairs in all abstruse questions of jwliti- 
cal economy. But at home, or when they return from Congress, they have 
negroes to fan them asleep. But a Pennsylvania, a New York, an Ohio, or 
a western Virginia statesman, though far inferior in logic, metaphysics, 
and rhetoric to an old Virginia statesman, has this advantage, that when 
he returns home he takes off his coat and takes hold of the plow. This 
gives iiim bone and muscle, sir, and preserves his republican principles 
pure and uncontaminated. 

So long as free land exists, the opportunity for a competency 
exists, and economic power secures political power. But the 
democracy born of free land, strong in selfishness and individ- 
ualism, intolerant of administrative experience and education, 
and pressing individual liberty beyond its proper bounds, has 
its dangers as well as its benefits. Individualism in America 
has allowed a laxity in regard to governmental affairs which 
has rendered possible the spoils system and all the manifest 
evils that follow from the lack of a highly developed civic 
spirit. In this connection may be noted also the influence 
of frontier conditions in permitting inflated paper currency 
and wild-cat banking. The colonial and revolutionary frontier 
was the region whence emanated many of the worst forms of 
paper currency .^ The West in the War of 1812 repeated the 

1 Cf. Wilson, Division and Reunion, pp. 15, 24. 

2 On the relation of frontier conditions to Revolutionary taxation, see 
Sumner, Alexander Hamilton, chap. iii. 



54 SELECTED EEADINGS IN ECONOMICS 

phenomenon on the frontier of that day, while the speculation 
and wild-cat banking of the period of the crisis of 1837 occurred 
on the new frontier belt of the next tier of states. Thus each 
one of the periods of paper-money projects coincides with 
periods when a new set of frontier communities had arisen, and 
coincides in area wijih these successive frontiers, for the most 
part. The recent radical Populist agitation is a case in point. 
Many a state that now declines any connection with the tenets 
of the Populists itself adhered to such ideas in an earlier stage 
of the development of the state. A primitive society can hardly 
be expected to show the appreciation of the complexity of 
business interests in a developed society. The continual recur- 
rence of these areas of paper-money agitation is another evi- 
dence that the frontier can be isolated and studied as a factor 
in American history of the highest importance. 

Attempts to check and regulate the Frontier 

The East has always feared the result of an unregulated 
advance of the frontier, and has tried to check and guide it. 
The English authorities would have chefcked settlement at the 
head waters of the Atlantic tributaries and allowed the "savages 
to enjoy their deserts in quiet lest the peltry trade should 
decrease." This called out Burke's splendid protest: 

If you stopped your grants, what would be the consequence? The 
people would occupy without grants. They have akeady so occupied in 
many places. You cannot station garrisons in every part of these deserts. 
If you drive the people from one place, they will carry on their annual 
tillage and remove with their flocks and herds to another. Many of the 
people in the back settlements are already little attached to particular 
situations. Already they have topped the Appalachian mountains. From 
thence they behold before them an immense plain, one vast, rich, level 
meadow ; a square of five hiindred miles. Over this they would wander 
without a possibility of restraint ; they would change their manners with 
their habits of life ; they would soon forget a government by which they 
were disowned ; would become hordes of English Tartars ; and, pouring 
down upon your unfortified frontiers a fierce and irresistible cavalry, 
become masters of your governors and your counselors, your collectors and 
compti'ollers, and of all the slaves that adhered to them. Such would, and 



thp: frontier in American history 55 

in no loiif^ time must, be tho attempt to for})id as a crime and to suppress 
as an evil the command and blessing of rrovidence, " increase and multi- 
ply." Such would be the happy result of an endeavor to keep as a lair of 
wild beasts that earth which God, by an express charter, has given to the 
children of men. 

But the English government was not alone in its desire 
to limit the advance of the frontier and guide its destinies. 
Tide-water Virginia 1 and South Carolina'-^ gerrymandered those 
colonies to insure the dominance of the coast in their legis- 
latures. Washington desired to settle a state at a time in the 
Northwest. In the constitutional convention of 1787 Gouver- 
neur Morris declared that the western country would not be able 
to furnisli men equally enlightened to share in the administra- 
tion of our common interests. The busy haunts of men, not 
the remote wilderness, was the proper school of political talents. 
" If the western people get power into their hands, they will 
ruin the Atlantic interest. The back members are always most 
averse to the best measures," He desij-ed, therefore, to fix such 
a rule of congressional representation that the Atlantic States 
could always outvote the Western.-^ Jefferson would reserve 
from settlement the territory of his Louisiana purchase north of 
the thirty-second parallel, in order to offer it to the Indians in 
exchange for their settlements east of the Mississippi. " Wlien 
we shall be full on this side," lie writes, " we may lay off a 
range of states on the western baidc from the head to the 
mouth, and so range after range, advancing compactly as we 
multiply." Madison went so far as to argue to the French 
minister that the United States had no interest in seeing popu- 
lation extend itself on the right bank of the Mississippi, but 
should rather fear it. When the Oregon question was under 
debate, in 1824, Smyth, of Virginia, would draw an unchange- 
able line for the limits of the rnited States at tlie outer limit 
of two tiers of states beyond the Mississippi, complaining that 

1 Debates in the Virginia Constitutional Convention, 1820-1830. 

2 Calhoun, Works, I, 401-40G. 

'Elliot's Debates, V, 208. Of. .Tosiah Quincy's out])ur.st in the House of 
Representatives on the adnii.ssion of Louisiana, January 14, 1811. See John- 
ston, American Orations, I, 145. 



56 SELECTED HEADINGS IN ECONOMICS 

the seaboard states were being drained of the flower of their 
population by the bringing of too much land into market. 
Even Thomas Benton, the man of widest views of the destiny 
of the West, at this stage of his career declared that along the 
ridge of the Rocky mountains " the western limits of the 
republic should be drawn, and the statue of the fabled god 
Terminus should be raised upon its highest peak, never to be 
thrown down." ^ But the attempts to ' limit the boundaries, to 
restrict land sales and settlement, and to deprive the West of 
its share of political power were all in vain. Steadily the 
frontier of settlement advanced and carried with it individual- 
ism, democracy, and nationalism, and powerfully affected the 
East and the Old World. 

Religious Organization 

The most effective efforts of the East to regulate the frontier 
came through its educational and religious activity, exerted by 
interstate migration and by organized societies. Speaking, in 
1835, Dr. Lyman Beecher declared : " It is equally plain that the 
religious and political destiny of our nation is to be decided in 
the West," and he pointed out that the population of the West 
" is assembled from all the states of the Union and from all the 
nations of Europe, and is rushing in like the waters of the 
flood, demanding for its moral preservation the immediate and 
universal action of those institutions which discipline the mind 
and arm the conscience and the heart. And so various are 
the opinions and habits, and so recent and imperfect is the 
acquaintance, and so sparse are the settlements of the West, 
that no homogeneous public sentiment can be formed to legis- 
late immediately into being the requisite institutions. And yet 
they are all needed immediately in their utmost perfection and 
power. A nation is being ' born in a day.' . . . But what will 
become of the West if her prosperity rushes up to such a 
majesty of power, while those great institutions linger which 
are necessary to form the mind and the conscience and the 

1 Speech in the Senate, March 1, 1825 ; Eegister of Debates, I, 721. 



THE FROisTlEK IK AMEK1CA:N HISTOKY 57 

heart of that vast world ? It must not be permitted. . . . 
Let no man in the East quiet himself and dream of liberty, 
whatever may become of the West. ... Her destiny is our 
destiny." 

With the appeal to the conscience of New England, he adds 
appeals to her fears lest other religious sects anticipate her own. 
The New England preacher and the school-teacher left their 
mark on the West. The dread of western emancipation from 
New England's political and economic control was paralleled by 
her fears lest the West cut loose from her religion. Comment- 
ing, in 1850, on reports that settlement was rapidly extending 
northward in Wisconsin, the editor of the Home Missionary 
writes : " We scarcely know whether to rejoice or mourn over 
this extension of our settlements. While we sympathize in 
whatever tends to increase the physical resources and pros- 
perity of our country, we cannot forget that with all these dis- 
persions into remote and still remoter corners of the land the 
supply of the means of grace is becoming relatively less and 
less." Acting in accordance with such ideas, home missions 
were established and western colleges were erected. As sea- 
board cities like Philadelphia, New York, and Baltimore strove 
for the mastery of western trade, so the various denominations 
strove for the possession of the West. Thus an intellectual 
stream from New England sources fertilized the West. Other 
sections sent their missionaries ; but the real struggle was 
between sects. The contest for power and the expansive tend- 
ency furnished to the various sects by the existence of a moving 
frontier had important results on the character of religious 
organization in the United States. The multiplication of rival 
churches in the little frontier towns had deep and lasting social 
effects. The effects of western freedom and newness in pro- 
ducing religious isms is noteworthy. Illustrations of this 
tendency may be seen in the development of the Millerites, 
Spiritualists, and Mormons of western New York in its frontier 
days. In general the religious aspects of the frontier deserved 
study. 



58 SELECTED READINGS IN ECONOMICS 

Intellectual Traits 

From the conditions of frontier life came intellectual traits of 
profound importance. The works of travelers along each frontier 
from colonial days onward describe certain common traits, and 
these traits have, while softening down, still persisted as sur- 
vivals in the place of their origin, even when a higher social 
organization succeeded. The result is that to the frontier the 
American intellect owes its striking characteristics. That 
coarseness and strength combined with acuteness and inquisi- 
tiveness ; that practical, inventive turn of mind, quick to find 
expedients ; that masterful grasp of material things, lacking in 
the artistic, but powerful to effect great ends ; that restless, 
nervous energy ; ^ that dominant individualism, working for 
good and for evil, and, withal, that buoyancy and exuberance 
which come with freedom, — these are traits of the frontier, or 
traits called out elsewhere because of the existence of the 
frontier.-^ We are not easily aware of the deep influence of this 
individualistic way of thinking upon our present conditions. 
It persists in the midst of a society that has passed away from 
the conditions that occasioned it. It makes it difficult to secure 
social regulation of business enterprises that are essentially 
PuTdUc ; it is a stumbling-block in the way of civil-service 
reform ; it permeates our doctrines of education ; ^ but with 
the passing of the free lands a vast extension of the social 
tendency may be expected in America. 

Ratzel, the well-known geographer, has pointed out the fact 
that for centuries the great unoccupied area of America fur- 
nished to the American spirit something of its own largeness. 
It has given a largeness of design and an optimism to American 

1 Colonial teavelers agree in remarking on the phlegmatic characteristics of 
the colonists. It has frequently been asked how such a people could have 
developed that strained nervous energy now characteristic of tliem. Cf. Sum- 
ner, Alexander Hamilton, p. 98, and Adams, History of the United States, 
I, 60 ; IX, 240, 241. The transition appears to become marked at the close of 
the War of 1812, a period when interest centered upon the development of the 
West, and the West was noted for restless energy. — Grund, Americans, II, i. 

2 See the able paper by Professor De Garmo on "Social Aspects of Moral 
Education," in the Third Yearbook of the National Ilerbart Society^ 1897, p. 37. 



THE FRONTIER IN A.Mi:UlCAN lU.STUliY o'J 

thought. • Since the days when tlie fleet of Columljus sailed 
into tlie waters of the New Woikl, America has been another 
name for opportunity, and the people of the United States have 
taken their tone from the incessant expansion which has not 
only been open, but has even been forced upon them. He 
would be a rash prophet who should assert that the expansive 
character of American life has now entirely ceased. Movement 
has been its dominant fact, and, unless this training has no 
effect upon a people, the American energy will continually 
demand a wider field for its exercise.^ But never again will 
such gifts of free land offer themselves. For a moment, at the 
frontier, the bonds of custom are broken and unrestraint is 
triumphant. There is not t(thula rasa. The stubborn American 
environment is there with its imperious summons to accept its 
conditions ; the inherited ways of doing things are also there ; 
and yet, in spite of environment, and in spite of custom, each 
frontier did indeed furnish a new field of opportunity, a gate of 
escape from the bondage of the past ; and freshness, and confi- 
dence, and scorn of older society, impatience of its restraints 
and its idcas^and indifference to its lessons have accompanied 
the frontieiT What the Mediterranean sea was to the Gieeks, 
breaking the bond of custom, offering new experiences, calling 
out new institutions and activities, that, and more, the ever- 
retreating frontier has been to the United States directly, and 
to the nations of Europe more remotely. And now, four cen- 
turies from the discovery of America, at the end of a hundred 
years of life under the Constitution, the frontier has gone, and 
with its going has closed the first period of American history. 

1 See paper on "The "West as a Field for Historical Study," in Rcjwrt of 
American Historical Association for ISiH!, pp. 270-319. 

2 The commentary upon this sentence — written in 1803 — lies in the recent 
history of Hawaii, Cuba, Porto Rico, the Philippines, and the Isthmian canal. 



CHAPTER III 

THE GROWTH OP CITIES IN THE U:N"ITED STATES i 

Of late years there have been many able discussions of the 
problems of city government in the United States. Most of 
these discussions, however, have turned upon the forms of mu- 
nicipal governments and the dangers discernible in their work- 
ings : the existence and growth of cities have been assumed 
as a matter of course. Nevertheless, the fact that we have so 
many cities to govern is one of the most astonishing in history. 
A little more than a hundred years ago the whole population 
of the United States was under four millions, of whom hardly 
a hundred thousand lived in cities. There were in 1890 four 
hundred and forty-seven cities, with a total population of more 
than eighteen millions.^ Since 1790, the population of the 
United States has increased nearly sixteen times, while the 
cities have increased in number more than seventy times, and 
the urban population nearly a hundred and forty times. 

In the causes and development of this phenomenal growth 
may perhaps be found an explanation of some of the compli- 
cated problems of city government. This paper will therefore 
be devoted to three inquiries : 

1. What causes have determined the sites and distribution of 
American cities ? 2. What has been the growth of their popu- 
lation? 3. What is noticeable about the status and social con- 
dition of people in cities ? ^ 

1 " The Rise of American Cities," by Professor Albert Buslmell Hart. 
Reprinted from Hart's Practical Essays on American Government, p. 162, 
et seq., by permission of the author and the publishers, Messrs. Longmans, 
Green & Co., New York and London. 

2 In 1900 there were 545 cities containing 24,992,000 inhabitants, or 33. 1 per 
cent of the total population. — Ed. 

3 In this volume only the discussion relating to the first inquiry is reproduced. 
— Ed. 

60 



THE (JROWTH OF CITIES 61 

At the outset, what is meant by the term "• city " ? The 
English usage, by which no place is strictly a city which has 
not a cathedral and a bishop, is no longer applicable even in 
England. To use the term for every place having a so-called 
" city " charter would include many an unimportant Charles 
City or Falls City. In New England there are often several 
centers of population still united under the old town govern- 
ment, but the aggregate is not a city in name. For convenience, 
the definition of the Tenth Census will be adopted: a city is 
any aggregate of eight thousand or more persons living under 
one local government. 

Before noticing the rate of growth of particular cities, it is 
desirable to consider what causes have planted and nourished 
our chief centers of population. The reasons which can be given 
for the site of most ancient and mediteval cities are here singu- 
larly inapplicable. An Athenian or Salzburger suddenly placed 
in our midst would declare that this strange people had deliber- 
ately avoided the most eligible sites, and had exposed them- 
selves to ruin. The intelligent Athenian or candid Salzburger 
must quickly see, however, that the conditions of life in the 
New AVorld have been different. Our cities have grown up in 
a time of peace. Steam power, artificial roads, and the use of 
large craft have changed the character of manufactures and 
commerce. The political importance of cities has diminished, 
and their commercial importance has increased. Little as he 
might admire the external appearance of some of our cities, even 
Alexander or Wallenstein might share the admiration which 
Bliicher expressed when taken through the streets of London 
after Waterloo : " Mein Gott, was flir eine Stadt zum plundern I " 

Most ancient or mediteval cities, as Jerusalem, Athens, and 
Rome, were grouped about a hill ; or on an island, as were 
Paris, Rhodes, and Venice ; or on a promontory, as Constanti- 
nople ; or, if in flat land, they were not immediately on the 
coast, as London, Pisa, Cairo. The reason was a simple one: 
they felt themselves in danger of attack, and sought the most 
defensible situations. It is not too much to say that not one city 
in the United States owes its growth t(j its protected situation. 



62 SELECTED EEADINGS IN ECONOMICS 

Quebec stands like a lion on its rock ; but there is not, and 
never has been, one first-class fortress or citadel within our 
present limits. So far is this the case, that of ten larger cities 
in the United States, six, probably seven, are exposed to attack 
by sea and insufficiently protected.^ Military authorities assure 
us that a bombardment is by no means the serious affair that 
people suppose. Nevertheless, the prosperity of the coast cities 
may at any time receive a terrible blow, because other than 
military reasons have determined their site. 

A second great reason for the location of cities applies as 
efficaciously now as at any former time : it is the convenience 
of commerce. The sage observation that Providence has caused 
a large river to flow past every great city is as nearly true now 
as it was when Memphis, Babylon, and Cologne were built. 
As nature has determined the position of some cities by fur- 
nishing a bold and therefore a defensible site, so she has selected 
that of others by inequalities in the bed of streams. The site 
of many American cities is on a river at the head or foot of 
navigation, usually just above or below a fall. This is the case 
with Louisville and Buffalo. St. Paul marks the upper part of 
the Mississippi, as Troy marks the Hudson, and Duluth and 
Chicago the head waters of the St. Lawrence. More often the 
large city grows up at the mouth of a river or near its mouth. 
This is the case with many of our lake cities, as Cleveland and 
Milwaukee ; so St. Louis stands on the first high land below 
the confluence of the Missouri and Mississippi ; Baltimore owed 
its early growth to the Susquehanna trade ; New Orleans and 
New York are famous examples. 

The history of the world has shown that it is much less 
important for a city to have the length of a great river behind 
it than to have a good harbor before it. Newburyport at the 
mouth of the Merrimac, Saybrook at the mouth of the Connec- 
ticut, have long since fallen out of the race with Boston on the 

1 New York, Brooklyn, Philadelphia, Boston, Baltimore, San Francisco, and 
New Orleans are exposed : only Chicago, St. Louis, and Cincinnati are safe. 
[Since this was written the coast defenses have been considerably strengthened. 
— Ed.] 



THE GianVTJl OF CITIES 63 

Charles, Pliiladelpliia on the Schuylkill, and Providence on 
the Moshassuck. It is the harbor that counts most, and not 
the river navigation. The further up into the land a harbor 
penetrates, the more valuable it is. In America, as elsewhere 
in the world, the point where the tidal water of an estuary 
meets the fresh water of a river is marked by nature for the 
site of a settlement. Hence the foundation of the greatness of 
London, Hamburg, Bordeaux ; hence the importance of Nor- 
folk, Charleston, Baltimore, and Philadelphia. New York and 
San P^rancisco alone of our large cities lie at the mouth of 
an estuary. 

The depth of harbors was for many j^ears of less consequence 
than their accessibility and protection. From the little havens 
of the Cinque Ports issued the wasp's nest of vessels whicli pro- 
tected the coast of England. From Duxbury, Falmouth, and 
Perth Amboy sailed the East Indiamen of a century ago. The 
increasing size and draught of seagoing steamers have caused a 
concentration of trade into the few large and deep harbors, and 
this is doubtless one cause of the disproportionate growth of the 
large cities in the United States. As the coast from Nova Scotia 
to New Jersey contains the best harbors in the North Atlantic 
ocean, the cities of that region have a natural advantage over 
their southern rivals. On the other hand, the ports from New 
York to Norfolk, and the lake ports, have an advantage in their 
nearness to supplies of coal ; and the advantage increases as 
steamers take the place of sailing vessels. 

Sixty years ago New England seemed likely to lose her com- 
mercial importance, because tlie mountains cut her off from 
direct communication with the West. It is not enough for a 
place to have a harbor and good communication with foreign 
countries in order to grow into a city. It must also have direct 
and easy connection with a rich country in the interior. Verona, 
though an interior city, has for ages lain at the mouth of the 
easiest Alpine pass. Trieste is the port for southern Germany. 
For the same reason, Baltimore, Cliarleston, P]iiladelj)hia, Chi- 
cago, and St. Paul have had a better opportunity for growth 
than Boston. 



64 SELECTED READINGS IN ECONOMICS 

New York, in spite of her magnificent iiarbor, suffered from 
a mistake of the geologic forces. A glance at the map shows 
that the Great Lakes were meant to drain into the Hudson ; and 
their waters still protest, as they thunder down Niagara, against 
an unnatural diversion to an estuary frozen one half the year. 
To remedy the mistake of nature, the state of New York con- 
structed the Erie canal, finished in its first form in 1825 ; and 
the astonishing growth of the city is the fruit of that under- 
taking. Philadelphia, Washington, and Richmond vainly tried 
to imitate this triumph. But Baltimore rivaled it by the early 
construction of the Baltimore & Ohio Railroad. 

The effect of our railroad system has been to make available 
the best harbors, wherever found, and to make large areas of 
rich country tributary to the cities upon them. Boston could 
scarcely live from New England products alone. New York 
depends for daily bread on Ohio, Michigan, and Minnesota. 
Of the six largest cities in the country, five are the larger 
Atlantic ports, — Boston, New York, Brooklyn, Philadelphia, 
Baltimore ; and they are among the most distant from the 
center of food supply. The other city of the six, Chicago, illus- 
trates another great change in modern, as compared with ancient, 
commercial conditions : Chicago is a great trade center. Its 
site was determined by the fact that a little creek made the 
most convenient harbor at the head of Lake Michigan ; railroads 
diverged from it, railroads were built to it. It has become a 
distributing point for the states to the west of it. St. Paul and 
Minneapolis in the Northwest, St. Louis and Kansas City in 
the Southwest, owe their growth to the same cause. Their 
site was determined by their position on rivers, but the river 
trade is now of small importance.^ The present growth of the 
interior cities is due to the network of connecting railways. 

In the series of commercial reasons just discussed for the 
growth of cities, there is evident a tendency to concentrate 
trade. The few places which combine good harbors or a central 
situation with lake or river navigation, with established trade 

1 Except, of course, the trade down the river from St. Louis to New Orleans. 
Even this route is now paralleled by a railroad. 



THE GROWTH OF CITIES 



65 



routes, with artificial means of transit, and with cheap coal, 
must more and more gather to themselves foreign and internal 
commerce. It is for these reasons that New York is and must 
always be the chief city in the western hemisphere. 

The coast cities, however, owe only a part of their prosperity 
to their situation as points of exchange for foreign products. 
We sometimes lose sight of the fact that all our greater com- 
mercial cities are also great manufacturing cities. The first 
nine cities in population are the first nine in value of manufac- 
tured products.^ New York in 1880 led in manufactures of 
clothing. Philadelphia, second only to Lynn in shoes, sur- 
passed Lawrence in mixed textile goods. It is not merely that 
these cities manufacture more because they have more people : 
they have more people because they manufacture to advantage. 

When manufacturing began on a large scale in the United 
States certain inland cities grew up, because they had an advan- 
tageous water power. Rochester and Minneapolis, and especially 
the towns on the Connecticut and Merrimac, owe their pros- 
perity to the shrewdness of men who caused water to fall in an 
orderly manner through their overshot and turbine wheels rather 
than tumultuously over rocks. It is a very singular fact that 
the advantage of water-power sites is at present very slight. 



^ In 1900 the principal manufacturing centers were as follows ; 





Value of Products 




Cities 


Total 


Rank 


Number of 
States Out- 
ranked in 
Value of 
Products 


POPULA- 
• TION 


New York, N.Y 


$1,371,358,468 

888,94.-).;ni 
003,460,526 
2:i3,629,7:J3 
200,081,767 
20.!, 201 ,251 
1<;1 .249.240 
l.-.7.>s<)0,«.'J4 
l:«).tv49,806 
133,069,416 


1 
2 

3 
4 
5 
6 
7 
8 
9 
10 


49 

47 
45 
37 
37 
37 
34 
M 
32 
32 


3,437,202 


Chicago, 111 

Philailelphiii, Pa 

St. Louis, Mo 

Boston, Ma.ss 

Pittsburg, Pa. . . . 


1,698,575 
1,293,697 
575,238 
500,892 
321,616 
508,957 
325,902 


Baltimore, Md 


Cleveland, Ohio .... 


381,768 


San Francisco, Cal 


342,782 



— Ed. 



66 SELECTED READINGS IN ECONOMICS 

A high official in the Amoskeag Corporation — said to be the 
largest concern engaged in textile manufacturing in the world 

has said that if Manchester, New Hampshire, the seat of the 

works, were not already built, it would not be built for the sake 
of utilizing that important water power. There are many mag- 
nificent mill sites in the North Carolina mountains still unused 
and likely to be unused for many years. Where coal is cheap 
steam power is, on the whole, more convenient : hence the 
growth of Fall River, New Bedford, and Providence ; hence, 
also, the possibility of manufacturing in the large coast and 
inland cities, in competition with the water powers. We all 
recognize that Pittsburg owes its prosperity to the soft coal near 
by ; we less often reflect that Baltimore, Philadelphia, and New 
York enjoy a similar advantage over the New England cities. 

The success of manufactures and the consequent distribution 
of population into manufacturing cities depends, perhaps, less 
on the natural advantages of a place than on the skill and in- 
dustry of the people. The great ease of transporting persons 
over large distances — an absolutely new thing in the history of 
the world — makes it possible to mass skilled laborers in cities. 
The coast cities enjoy the advantage of receiving such laborers 
direct from abroad, and thus in many cases they have the first 
choice. There is a corresponding disadvantage. Almost all the 
immigrants into the United States land at one of four ports, — 
Boston, New York, Philadelphia, Baltimore ; and these cities 
fail to sift into the country beyond some elements which cause 
them great perplexity. 

For the prosperity of the country it is far less important that 
population should grow than that it should grow intelligent. 
In this respect the coast cities have some advantage. The 
people of great . seaports have always the inestimable stimulus 
of direct intercourse with the world abroad and at home. Hence 
the population of New York is more likely to absorb new ideas 
than the population of Lowell or Cincinnati. In manufacturing 
cities, small and great, social and political problems are more 
difficult. Here it is possible to employ the labor of women 
and children; the taxes are more likely to fall upon the large 



THE GltOWTlI OF CITIES G7 

corporations, and to be spent by men who have no property. 
The nianufacliiring cities, even the smaller ones, are more closely 
peopled than those whose greater interest is commerce. 

A distinct class of cities, numerous and populous, has grown 
up in the last thirty years, away from the coast and from water 
powers, but around mines of coal and metals, or near deposits of 
petroleum. Pittsburg and its neighbor Allegheny are the 'most 
important. Places like Altoona, Cumberland, Scranton, and 
Wheeling are rapidly following them. Wherever there is coal 
manufactures spring up, and populous cities. Around other 
mines have grown sometimes stj-ange and phenomenal places. 
Pithole, Pennsylvania, once a ragged, unpromising hill farm, 
became a city of thirty thousand people ; and a few years later 
its handsome brick hotels and banks were inhabited by two 
people, and its railroad was torn up. A similar fate seems 
likely to overtake Virginia City, Nevada, and may possibly 
overtake Leadville. 

In addition to the geographical reasons which have just been 
enumerated, there are certain other physical causes which assist 
the aggregation of people in a particular spot. Tliat place which 
lies near a good water supply has a better chance of growth; 
a city which is easily drained ought to be more healthy ; and a 
city which has a beautiful site, well improved, and a system 
of parks, attracts people of leisure. These causes have a smaller 
influence than they deserve : Philadelphia has now more than 
a million of people whose chief drink is Schuylkill water, and a 
part of whom grow up in spite of surface diainage. On the 
otlier hand, cities with fewer natural advantages cheerfully 
spend large sums on aqueducts or systems for pumping sewage. 
The less fortunately situated cities have often the best water 
and the best pleasure grounds. It is almost inconceivable that 
of all the wealthy cities on the Atlantic coast, not one has a 
water-front park of any size. The growth of the population has 
been unexpected to itself; and the inestimable privilege of a 
beautiful sea front has forever passed away. With the excep- 
ti<jn of Washington, Chicago, and Boston, hardly any city is now 
making adequate provision for parks for the next generation. 



68 SELECTED READIIsTGS IN ECOIs^OMICS 

One of the causes which had most effect upon the growth of 
ancient and medieval cities has very little operation in the 
United States. Corinth, Perugia, Augsburg, were little inde- 
pendent states. Syracuse, Florence, or Nuremberg could, on 
occasion, put an army of fifty thousand men into the field. The 
city was the unit of political life. Cities grew because the 
people were freer there than in the country. No such tendency 
has ever shown itself in America. Beyond a few angry sugges- 
tions, during the Civil War, that New York City be created 
into a separate state, there has been no attempt to make a city 
a commonwealth; no one moves from Boston to Philadelphia 
to escape a tyrant's rule ; no county Democrat is exiled because 
Tammany has the upper hand; the cities are subordinated to 
the states. It is hard to see how it could be otherwise ; but that 
dependence upon the state has brought a danger into our munic- 
ipal system : the well-meaning people of the cities have come 
to look to the state government as a deus ex macliina ; they 
expect more from a change of charter than from a change of 
heart. It is probable that if the people of New York City were 
left to themselves, and could get no relief from Albany, they 
would have to-day a better, cleaner, and more economical gov- 
ernment ; and that the much more satisfactory government of 
Boston would be improved if the responsibility for it were 
thrown wholly upon the Bostonians. 

When a city is once started, it is likely to grow from the 
mere force of gravitation. It is more than a figure of speech to 
use the terms which suggest the superior attractiveness of city 
life. What else is " politics " than what the people of the 7roX,t? 
do ? What is the " urbane " man but the dweller in the urhs, 
and the " pagan " but the unconverted dweller in the fields ? 
Nor is it the higher and more intelligent class which is most 
attracted by city life : where one person is drawn to a city by 
schools, churches, concerts, libraries, and theaters, five are drawn 
by the excitement and stir and activity of a city. One of the 
greatest problems of modern times is how to get people out of 
the exhausting or despairing life of cities into the quiet and 
comfort of villages. And while the country life of Newport, 



THE (i ROW Til OF (TTTES 09 

Lenox, and Manchester-by-the-Sea attracts a certain class for a 
season, annually more extended, an increasing number of well- 
to-do people leave the smaller towns in which they are first 
in wealth and influence to engage in a doubtful struggle for 
recognition by people of greater wealth and social power in the 
great cities. One city in the Union, the most beautiful of all, 
and the capital of the nation, owes its growth in considerable 
part to its attractiveness for people who can live anywhere 
they like. 

The importance and the beauty of Washington, however, are 
chiefly due to another cause of growth, the last here to be dis- 
cussed. It is distinctly an artificial city, a creation rather than 
a growth. There have been times when the will of a despot 
has caused the walls of a new city to rise : Alexander built 
almost as many cities as he destroyed. The will of the sovereign 
people has also established cities, and of these Washington is the 
principal one. Some city was likely to grow up on the lower 
Potomac, but that it should be Washington rather than Alex- 
andria is due only to the combination of political forces which 
determined the site of the national capital, — to the quarrel over 
the assumption of state debts, the arrival of the North Caro- 
lina members, and the compromise arranged between the astute 
Hamilton and the too-confiding Jefferson. Several considerable 
cities have been built up in like manner by votes of state legis- 
latures or conventions. Harrisburg would be no more important 
than Lancaster but for the Pennsylvania capital; Columbus, 
Ohio, has few natural advantages ; Jefferson City, Missouri, 
would be a hamlet if the legislature had never met there. The 
smaller centers are powerfully affected by such political dis- 
tinctions. A few months ago the people of a Kansas county 
were seen with arms in their hands settling the location of the 
county seat, or bodily moving houses from one would-be metrop- 
olis to another. 

The site of Indianapolis was fixed near the center of gravity 
of Indiana; but its growth is due to another artificial cause, 
peculiar to new countries like America. It is the center of a 
great system of radiating railroads ; and it has grown, while 



70 SELECTED EEADINGS IN ECONOMICS 

Cairo, at the confluence of the Ohio and the Mississippi, has 
decayed. To create a city by converging railroads upon a spot 
in the wilderness is not always possible ; but when such a 
center is formed, it draws population to itself. There was a 
time when the established towns objected to the noise and 
bustle of railroads, and compelled them to avoid their limits ; 
for this reason the Boston & Lowell Railroad was obliged to 
steer between old towns like Woburn and Wilmington. Now 
towns strive, compete, and tax themselves to bring a railroad; 
and Woburn and Wilmington are glad to have even branch 
connections. The location of the first repair and construction 
shops mak^s the nucleus of a town or an addition to an existing 
town. A positive and even whimsical influence has been exerted 
by railroads in their choice of termini. But in the long run the 
railroads must go to the cities, and not the cities to the rail- 
roads. Racine and Superior City and Dunkirk are discouraging 
examples to the company which proposes to create a city by 
bringing the end of a line of rails to its site. 

In their effect upon the older cities, possessed already of in- 
alienable advantages, railroads have been more important than 
in the creation of new cities. When the Alleghenies were 
pierced, western commerce poured down into the termini of the 
railroads. The keen eye of Calhoun early saw that the ship 
must come to meet the car, and he earnestly advocated a great 
railroad from Charleston northwestward. But Baltimore, and a 
little later Philadelphia, had western lines years before Charles- 
ton or Mobile or Savannah or Norfolk or Richmond, and even 
before New York, Boston, Portland, and Montreal. The passes 
now occupied by the New York Central, Pennsylvania, Balti- 
more & Ohio, and Chesapeake & Ohio railroads are as much 
trade routes as the Suez canal or the Bosporus. No rival 
roads can compete on equal terms, and no neighboring cities 
can outstrip the termini of these great trunk lines. 

Another form of artificial stimulus to city building has had 
little influence in the United States. A colonized and coloniz- 
ing country, no cities have been built up by distinct, elaborate 
schemes of colonization. Settlements like Marietta have not 



THE GKOWTll OF CITIES 71 

grown to the dignity of cities. Settlements like Hugby have 
failed for want of adaptation to the circumstances. 

The principles upon which the growth of cities depends, as 
described in this paper, may perhaps be seen more clearly by 
applying them to a few specific cases. New York was first 
settled because it was an island, — a state of things which the 
people have since attempted, at great cost, to remedy. It is 
susceptible of defense against modern forms of attack, though 
at present its defenses are little more substantial than that fear 
of torpedoes and rumor of a novel steam craft which kept the 
British out in 1814. It has the best deep harbor on the Atlantic 
coast, easy of access for the largest vessels in the world. It is the 
Mecca of most imports. It lies at the end of a magnificent chain 
of internal navigation, reaching to Chicago and Duluth, and is 
the center of some of the greatest railroad systems in the world. 
Further, it is the recognized financial center of the United States. 
Commercially, therefore, it has no rival in the United States, 
and ciui never have any till the liills sink down behind Boston 
and Pliiladelphia, as the}" do in the Mohawk valle}'. The near- 
ness of coal and the abundant supply of labor of all kinds give 
it a great advantage as a manufacturing city. New York, with 
its adjuncts, Brooklyn, Jersey City, and other near cities, has 
nearly three million people, and is already the second center of 
population in the world. It has few artificial advantages: it is 
not the capital of the state or nation ; it is divided by arms of 
the sea from two of its three systems of railroads ; it does not 
attract peoj^le by the character of its government. It is the 
largest city because it has the largest opportunity. 

Boston, despite its great natural advantages, is a great city 
chiefly because of the character of its leading men. Like New 
York, it is defended from foreign enemies only by a sense of 
what is proper among gentlemen. The harbor is a line one, 
though not easy to enter for large vessels. Its eminence depends 
less on the western business than on the fact that it is the 
supply point for consideral)le i)arts of New England. Indeed, 
it is the intimate connection with the business of all New Eng- 
land which makes Boston so important : as a manufacturing 



72 SELECTED READINGS IN ECONOMICS 

center, it is first in nothing, and only third in curried leather 
and women's clothes. But it is the center of administration for 
the New England mills, and every pound of goods manufac- 
tured pays its tribute. It gets its share of immigration from 
abroad, and more than its share of people from other commu- 
nities in the United States. The natural beauty of the city is an 
attraction, greatly aided by the park and other improvements. 
More than any other city in America, it draws people to it by 
the excellence of its schools and libraries, and by the public 
spirit of its citizens. 

Chicago is great both from natural and artificial causes. It 
is not exposed to foreign attack. The head, in that direction, of 
the magnificent lake water ways, it is practically the western 
terminus of the Erie canal, and the most important station on 
the great trade route from New York to the Pacific coast and 
eastern Asia. Still more important, and the foundation of the 
wealth of Chicago, is the great valley of the upper Mississippi, 
the most fertile large area now occupied by man. Special manu- 
facturing advantages it does not possess, save that Ohio and 
Pennsylvania coal form a return cargo for its grain fleet. These 
commercial reasons completely compensate for the natural dis- 
advantages of the place, and the tremendous energy and skill 
of the people of Chicago will soon make it and keep it the 
second city in the Union. It was this energy which early caused 
the railroads to stretch out like antennce to the West, and which 
then foresaw the necessity of a like connection with the East. 
It is fortunate for the people of the city, and of other cities 
likely to imitate it, that this restless vigor is now hastening to 
beautify a city of which the site has few natural advantages. 
Handsome houses, beautiful parks, imposing public buildings, 
great libraries, — in these Chicago bids fair to surpass most of 
her older rivals, and in the Columbian Exposition has become 
the teacher of the nation in architecture, as in energy. 



CHAPTER TV 

AMERICAN AGRICULTURE 

1. The Agricultural Resources of the United States^ 

The accompanying map, prepared for the summary of internal 
commerce, Bureau of Statistics, Treasury Department, presents 
at a ghiiice the national resources of the country in their relation 
to agriculture. 

The internal commerce in the United States may be said to 
be carried on between six agricultural divisions on the basis of 
the staple industries which are fundamental in the prosperity of 
the different sections : 

1. In New England, dairying, trucking, and mixed farming 
have received their fullest development, and the same may be 
said of New York and parts of the other Middle States. The 
entire Northeast, including New England, New York, and the 
leading Middle States, is also so largely engaged in manufactur- 
ing as to comprise what may be called the industrial section 
of the United States. This group of states is, therefore, closely 
dependent upon the rest of the country for such raw materials 
as the other farming sections supply. 

2. The second division is conveniently designated as the 
cotton belt, comprising all that country lying south of the 
thirty-seventh parallel of latitude and extending west as far as 
the western boundary of Texas. This whole territory is primarily 
dependent upon cotton culture for its prosperity. 

3. North of this territory, lying between the thirty-fifth and 
forty-third parallels of latitude and extending to the western 
boundaries of Kansas and Nebraska, lies the third staple section, 
which may be called the corn and winter-wheat belt of the 

1 From the Report of the Industrial Commission, XIX, 46-47 (Final Re- 
port). 

73 



74 SELECTED EEADINGS IN ECONOMICS 

United States. Within this belt the production of live stock 
has also become a basic factor in agriculture. 

4. North of the forty-third parallel, extending westward from 
the Great Lakes to the eastern boundary of Montana and 
Wyoming, lies the spring-wheafbelt. 

5. The states and territories usually known as the Rocky 
Mountain states and territories, comprising Montana, Idaho, 
Wyoming, Colorado, New Mexico, Arizona, Utah, and Nevada, 
are devoted to the production of wool and live stock as funda- 
mental industries. 

6. The Pacific Coast states of Washington, Oregon, and 
California are still primarily agricultural. Wheat, barley, live 
stock, tunber, and fruits constitute the sources of their prosperity. 

This geographical grouping of agricultural activities lies at 
the basis of the internal commerce of the United States. 

Under the present state of agricultural development no section 
of the country has reached such a degree of self-sufficiency as to 
be independent of other sections, both for its means of subsist- 
ence and its materials of manufacture. Consequently the develop- 
ment of large trade centers is dependent upon the accumulation 
of staples and their distribution to various consuming uses 
throughout the country and the rest of the world. Manufactures 
and merchandise contribute a comparatively minor portion of 
the total tonnage carried on the railroads of the country. The 
dividend-earning freight of western railroads, for example, is 
found chiefly in the volume of grain and cattle shipments. The 
southern railroads rely largely on cotton, lumber, fruits, and vege- 
tables for their prosperity. Merchandise and manufactures are 
rather of the nature of a supplementary freight-earning business. 

2. Agricultural Production in 1906^ 

Preliminary crop estimates, subject to modification, must be 
used in the following review of the year's farm production, in 
advance of the final estimates of the department, to be made a 

1 From the report of Honorable James "Wilson, Secretary of Agriculture, for 
the year 1906. 




ItKsorucES 




Mai- ov tiik Unitkd States showing the Piuncipal Agiucui.tukal ani> Other Natuhal KKsorucKS 



.-4r- 



AMERICAN AGKICULTUKE 75 

little later. The estimate of total agricultural wealth production 
has been continued from previous years and is again presented 
as an indication of the linancial results of the year s operations. 
All attempts in the past, by subtracting from this grand total of 
value such products as are used wholly or in part in the making 
of other farm products in order that the farmer's net wealth 
production might be ascertained, have given no indication of what 
that net production was and have only obscured the matter. 

Taken at that point in production at which they acquire 
commercial value, the farm products of the year, estimated for 
every detail presented by the census, have a farm value of 
!i>6,794,000,000. This is 8485,000,000 above the value of 1905, 
$635,000,000 above 1904, 8877,000,000 above 1903, and 
$2,077,000,000 above the census for 1899. 

The value of the farm products of 1906 was 8 per cent greater 
than that of 1905, 10 per cent over 1904, 15 per cent over 1903, 
and 44 per cent over 1899. 

A simple series of index numbers is readily constructed, Avhich 
shows the progressive movement of wealth production by tlie 
farmer. The value of the products of 1899 being taken at 100, 
the value for 1903 stands at 125, for 1904 at 131, for 1905 at 
134, and for 1906 at 144. 

Corn remains by far the most valuable crop, and the figure 
that it may reach this year is 81,100,000,000 for 2,881,000,000 
bushels — perhaps a little under the value of the next largest 
crop, that of 1905. 

The cotton crop, fiber and seed combined, follows corn in 
order of value, although it is only three fifths of the value of 
the corn crop. No connnents here must be regarded as indicating 
what the department's estimate of the cotton-fiber production 
is to be. Upon the basis of the general commercial expectation 
of a crop, it should be worth to the grower nearly 8640,000,000. 
In Texas alone the cotton crop is greater than that of British 
India and nearly three times that of Egypt, and it is half as 
much again as the crop of the world, outside of the United 
States, India, and Egypt. 



76 SELECTED READINGS IN ECONOMICS 

Hay is a crop that receives small popular attention, and yet 
it is the third one in value if cotton seed is included in the 
cotton crop, and this year it approaches $600,000,000 for a 
product that is short by perhaps 8,000,000 tons. 

Wheat. The fourth crop in order of value is wheat, which 
this year may be worth over $450,000,000, a value that has 
been exceeded in several years ; but in quantity this year's crop, 
with its 740,000,000 bushels, is only 8,000,000 bushels below 
the largest crop grown, — that of 1901. 

Oats. The crop of oats, on account of unfavorable weather, 
has fallen below the usual amount, but its value will be perhaps 
not far under $300,000,000, or about the same as for 1905, and 
not much under the highest value reached, in 1902. 

Potatoes. With a probable crop of fully 300,000,000 bushels, 
potatoes reach next to their highest production, which was in 
1904 ; but the total value, $150,000,000, rests upon a rather 
low average per bushel and has been exceeded in other years. 

Barley. Seventh among the crops in order of value is barley, 
a cereal that has gained 21 per cent in production in seven 
years. The 145,000,000 bushels grown this year may be worth 
$65,000,000, both bushels and dollars being much more than 
for the highest preceding years, — 1904 being the previous 
record year for yield and 1902 for value. 

Tobacco, which has shown weakness for several years on 
account of low prices, while not yet recovering its former place 
in pounds grown, has a crop this year of 629,000,000 pounds, 
with a value which is in close company with the three years of 
highest value, and it is expected will be worth $55,000,000, or 
perhaps $2,000,000 more. 

Sugar. A remarkable development has been made within a 
few years by now the ninth crop, — beet sugar. The production 
in 1906 is placed at 345,000 long tons, with a value supposed 
to be near $34,000,000. Seven years ago only 72,972 tons were 
produced, and their value was about $7,000,000. 

The year was a rather bad one for cane sugar, but in spite of 
this the total production of beet and cane sugar slightly exceeded 
the highest previous figure, although in value of sugar the year 



AMERICAN AGKICULTURE 77 

stands second. The value of all kinds of sugar, sirup, and 
molasses reaches a total of -yT 5, 00 0,000, second only to 1904, 
which was cane sugar's best year. 

Flaxseed. The 27,000,000 bushels of flaxseed have been 
exceeded by three years, although the value, -^25, 000, 000, 
reaches the highest point. 

Rice., standing twelfth in order, is another crop with its 
highest value perhaps •I'l 8,000,000, although in production the 
770,000,000 pounds of rough rice are second to 1904. Markets 
that have developed in Hawaii and Porto Rico have helped to 
keep the price high enough to account for the total value placed 
upon the crop. 

Rye has become a minor crop, and has now fallen below rice 
in value. The crop of this year is below the larger crops of 
recent years, and is about 28,000,000 bushels, worth perhaps 
*17,000,000. 

Hops. The fourteenth crop is hops, which reached its largest 
dimensions this year with 56,000,000 pounds, and as high a value 
as it has ever had, except in 1904, say ''it!7, 000,000. 

3. The General Characteristics of American Agriculture ' 

It is proposed in this paper to take a general view of the 
cliaracteristics of American agriculture. Ever since the revolt 
of the British colonies nullified the royal prohibition of the 
settlement of the Ohio valley, the frontier line of our population 
has been moving steadily westward, passing over one, two, and 
even three degrees of longitude in a decade, until now it rests 
at the base of the Rocky mountains. The report of the Public 
Land Commission to Congress, just issued from the press, states 
that the amount of arable lands still remaining subject to occu- 
pation under the Homestead and Preemption acts is barely 
sufficient to meet the demand of settlers for a year or two to 
come. This Avould seem a fitting point from which to review 
the course of American agriculture through the last hundred 

1 By Francis A. Walker. Reprinted from Tenth Census, III, xxxi-xxxiii. 
This first appeared in the Princeton Revieiv, May, 1882. 



78 SELECTED READINGS IN ECONOMICS 

years ; to inquire what have been its methods and what it has 
accomplished. 

The subject may be treated under the following titles : 

1. As to the tenure of the soil. 

2. As to character of the cultivators as a class. 

3. As to the freedom and fullness of experiment upon the 
relations of crops to climate and to local soils. 

4. As to what has been done biologically to promote our 
agriculture. 

5. As to what has been done mechanically. 

6. As to what has been done chemically, — under which title 
we shall have occasion to explain the westward movement of the 
field of cultivation of wheat and corn and the southwestward 
movement of the cotton culture. 

First. The tenure of land in the United States is highly 
popular. Throughout the northern and western states this 
has always been so. The result has not been wholly due, as 
one is apt to think, to the existence of vast tracts of unoccupied 
land " at the West," whatever that phrase may at the time have 
meant, whether western New York in 1810, or Ohio in 1830, 
or Iowa in 1850, or Dacotah in 1880. An aristocratic holding 
of land in New England would have been quite as consistent 
with a great breadth of free lands across the Missouri as is such 
a holding of land in England consistent with the existence of 
boundless fertile tracts in Canada and Australia under the laws 
of the same empire. 

The result in the United States has been due partly to the 
fact just noted, combined with the liberal policy of the govern- 
ment relative to the public domain ; partly to excellent laws 
for the registration of titles and the transfer of real property in 
nearly every state of the Union ; and partly to the genius of 
our people, their readiness to buy or to sell, to go east or to go 
west, as a profit may appear. 

But while we have thus enjoyed a highly popular tenure of 
the soil, this has not been obtained by the force of laws compel- 
ling the subdivision of estates, as in France, under the law of 
" partible succession"; nor has it been carried so far as to create ' 



AMERICAN AGRICULTURE 79 

a dull uniformity of petty holdings. If, as Professor Roscher 
remarks, " a mingling of large, medium, and small properties, in 
which those of medium size predominate, is the most wholesome 
of political and economical organizations," the United States 
may claim to have the most favorable tenure of the soil among 
all the nations of earth. We have millions of farms just large 
enough to profitably employ the labor of the proprietor and his 
growing sons ; while we have, also, multitudes of considerable 
estates upon which labor and moneyed capital, live stock and 
improved machinery, are employed under skilled direction ; and 
we have, lastly, those vast farms, the wonder of the world, in 
Illinois and California, where 1000 or 5000 acres are sown as 
one field of wheat or corn, or, as on the Dalrymple farms in 
Dacotah, where a brigade of six-horse mowers go, twenty abreast, 
to cut the grain that waves before the eye almost to the horizon. 

Whereas in France the number of estates is almost equal to 
the number of families engaged in agricultural pursuits, the 
number of separate farms with us is somewhat less than one 
half the number of persons actually engaged in agriculture, 
there being, on the average, perhaps 210 to 220 workers to 
each 100 farms. 

At the South the institution of slavery, with the organization 
of labor and the social ideas carried along by slavery, generated 
and maintained a comparatively aristocratic tenure of the soil. 
The abolition of slavery, accomplished as it was by the violence of 
war, has not only oreated a new class desirous of acquiring land, 
but, by impoverishing the former masters, has brought no small 
proportion of the plantations into the market, with the result 
that farms have been rapidly multiplied in this section. Since 
1870 the number of farms in thirteen of the late slave states for 
which I have the statistics has increased 65 per cent ; and this 
movement towards the sulxlivision of the large plantations is 
likely, in the absence of capital, to carry on extensive operations, 
to continue until the tenure of the soil shall be relatively even 
more popular than in the North.^ Mr. Edward Atkinson, an 

' In all sections of the country the average size of a farm decreased from 
1850 to 1880. Since that date there has been an increase in some sections, but 



80 



SELECTED READINGS IN ECONOMICS 



authority on the subject, holds that this minute subdivision of 
land will be peculiariy favorable to the cultivation of cotton. 

Of the 3,800,000 farms, approximately, into which the culti- 
vated area of the United States is divided, 60 or even 70 per 
cent are cultivated by their owners. In the Northern States the 
proportion rises to 80 per cent or even higher. Connecticut, 
Maine, and Massachusetts, of the New England States, and 
Wisconsin, Michigan, and Minnesota, of the Northwestern 
States, show an excess of 90 per cent. The rent of leased 
farms in New England is in a large majority of cases paid in 
money. In all other sections of the country rents are generally 
stipulated to be paid in some definite share of the produce, the 
proportion in many of the Southern and Western States being 
three, four, or five farms rented for shares of the produce to one 
for which a money rent is paid.^ 

in the South Atlantic States the decrease continued down to 1900. The follow- 
ing table shows the average number of acres per farm in the various geographic 
divisions in each census year since 1850. 



Geogkaphic Divisions 


1900 


1890 


1880 


1870 


1860 


1850 


The United States .... 


146.6 


136.5 


133.7 


153.3 


199.2 


202.6 


North Atlantic 

South Atlantic 

North Central 

South Central ...... 

Western 


96.5 
108.4 
144.5 
155.4 
386.1 
1142.1 


95.3 
133.6 
133.4 
144.0 
324.1 


97.7 
157.4 
121.9 
150.6 
312.9 


104.3 
241.1 
123.7 
• 194.4 
336.4 


108.1 
352.8 
139.7 
321.3 
366.9 


112.6 
376.4 
143.3 
291.0 
694.9 















— Ed. 

1 Of the 5,739,657 farms enumerated by the census in 1900 the various forms 
of tenure were as follows: 



GEOGR.S I'HIC 

Divisions 


Total 


Owners 


Part 
Owners 


Owners 

AND 

Tenants 


Man- 
agers 


C.VSH 

Tenants 


Share 
Tenants 


The United States 


5,739,657 


3,149,344 


451,515 


53,299 


59,213 


752,920 


1,273,366 


North Atlantic . . 
South Atlantic . . 
North Central . . 
South Central . . 
Western .... 
Alaska and Hawaii 


677,506 

962,225 

2,196,567 

1,658,166 

242,908 

2,285 


490,066 
474,540 
1,271,798 
743,097 
169,147 
696 


27,207 
46,899 
266,405 
86,469 
24,396 
139 


6,332 

6,073 

26,020 

13,404 

1,470 


13,119 
9,115 

19,618 

9,650 

7,583 

128 


66,361 
172,699 
207,732 
286,091 

18,782 
l,2f;5 


74,421 
252,899 
404,994 
519,455 

21,530 
67. 



— Eu. 



AMERICAN AGRICULTURE 81 

Second. Of the character of the cultivators of the soil in the 
United States it will not be necessary to speak at length. Con- 
fining our view to the country north of the Potomac and the 
Ohio, we say that, unlike the cultivators in any country of 
Europe except Switzerland and, perhaps, Scotland, they have 
at no stage of our history constituted a peasantry in any proper 
sense of the term. The actual cultivators of the soil here have 
been the same kind of men precisely as those who filled the 
professions or were engaged in commercial and mechanical pur- 
suits. Of two sons of the same mother one became a lawyer, 
perhaps a judge, or went down to the city and became a mer- 
chant, or gave himself to political affairs and became a governor 
or a member of Congress ; the other stayed upon the ancestral 
homestead, or made a new one for himself and his children out 
of the public domain farther west, remaining through his life a 
plain hard-working farmer. 

Now this condition of things has made American to differ 
from European agriculture by a very wide interval. There is 
no other considerable country in the world where the same 
mental activity and alertness have been applied to the cultiva- 
tion of the soil as to trade and so-called industry. 

We have the less occasion todwellnow upon this theme, because 
we shall be called to note, under several heads following, sti'ik- 
ing illustrations of the effects of tliis cause in promoting the 
success of American agriculture. 

And while the character of the native cultivators of the soil 
has been such as described, those who have come to us from 
foreign countries have caught the time and step and the spirit 
of the national movement with wonderful ease. As recruits 
received into an old regiment, with veterans behind, before, 
and on either side, with examples everywhere of the right way 
of doing things, and bieathing an atmosphere surcharged with 
soldierly instincts, are soon scarcely to be distinguished from 
the heroes of ten campaigns, so the rrormans, the Scandinavians, 
and, though in a less degree, the Irish and French Canadians, 
who liave made their homes where they are surrounded by the 
native agriculturists, liave become in a short time almost as 



82 SELECTED READINGS IN ECONOMICS 

good Yankees, if not too near the frontier of settlement, as if 
they had been born upon the hills of Vermont. 

While the cultivating class at the North has been as thus 
hastily characterized, at the South the soil was, until the War 
of the Rebellion, tilled by a race of blacks degraded and brutal- 
ized so far as is implied in a system of chattel slavery. Upon 
the fruits of their labor the master lived, either in luxury or in 
squalor, according to the number of those whose unpaid services 
he could command. The great majority of the slave-holding 
class lived far more meanly than ordinary mechanics at the 
North, or even than the common day laborers among us. 

Of the 384,000 slaveholders of 1860, 20 per cent owned one 
slave each ; 21 per cent more owned but two or three ; those 
who owned five slaves or fewer comprised 55 per cent of the 
entire number ; while 72 per cent had less than ten slaves, 
including men, women, and children. To the vast majority of 
this class slavery meant, simply and solely, shirking work ; and 
to enjoy this blessed privilege they were content to live in mis- 
erable huts, eat the coarsest food, and wear their butternut- 
colored homespun. The slave worked just as little as he could, 
and just as poorly as he dared ; ate everything on which he 
could lay his hands without having the lash laid on his back ; 
and wasted and spoiled on every side, not from a malicious 
intention, but because he was ignorant, clumsy, and stupid, or 
at least stupefied. The master lived upon whatever he could 
wrest from laborers of this class. Of the planters with seven 
cabins or families of slaves, averaging five each, including house 
servants, aged invalids, and children, Mr. Frederick Law Olmsted, 
in his work on " The Cotton Kingdom," estimated the income 
"to be hardly more than that of a private of the New York 
metropolitan police force." Yet there were only about 20,000 
slaveholders in 1860 who held slaves in excess of this number. 
Of these two or three thousand lived in something like state 
and splendor. 

What the industrial outcome of the abolition of slavery will 
be it is yet too early to decide ; but we already know that we 
are past the danger of " a second Jamaica," of which we had 



AMERICAN AdKICULTURE 83 

once a reasonable fear. The blacks are already under the im- 
pulse of their own wants, working better than they did beneath 
the lash, and those wants are likely to increase in number 
and intensity. 

As to the poor whites of the South, I am disposed to believe 
that they are preparing for us a great surprise. We have been 
accustomed to think of them as brutalized by slavery until they 
had become lazy, worthless, and vicious. Perhaps we shall find 
that the poor whites have been suppressed rather than degraded, 
and that beneath the lumting-fishing-lounging habit which 
slavery generated and maintained lies a native shrewdness 
almost passing Yankee wit, an indomitable pluck, such as has 
made tlie fights of Sharpsburg, Fredericksburg, and Gettysburg 
memorable forever in the history of mankind, and an energy 
which, when turned from horse races, street fights, cocking 
mains, hunting, and fishing, to breaking up the ground, felling 
the forest, running the mill, exploiting the mine, and driving 
trade, may yet realize all the possibilities of that fair land. 

Third. To ascertain what are the adaptations of any piece of 
ground to the cultivation of any single crop, and what variety 
and order of crops will best bring out the capabilities of soil and 
climate in the production of wealth, may seem a simple thing, 
but it is not. It is so far from being a simple thing that a race 
of men, not barbarous, but, as we call them, civilized, may in- 
habit a region for an indefinite period and this thing not be 
done at all. Such may be the lack of enterprise, such the force 
of tradition, that crops may be cultivated from generation to 
generation, and from century to centur}-, while the question has 
never yet been fairly determined whether the agriculture of 
the district might not advantageously be reenforced, and the 
soil be relieved, by the introduction of new crops, or even by 
throwing out the traditionary crops altogether. 

(xonzales in his " Tour of England " (1730) wrote : " And my 
tutor told me that a good author of their own made this remark 
of Wiltshire, 'that an ox left to himself would, of all England, 
choose to live in the noitli of this county, a sheej) in the. south 
])art of it, and a man in the middle of both, as partaking of the 



84 SELECTED READINGS IN ECONOMICS 

pleasure of the plain and the plenty of the deep country.' " 
The remark does not exaggerate the nicety of those distinc- 
tions which determine the range of the profitable cultivation 
whether of an animal or a vegetable species. A certain rough 
canvass of the agricultural capabilities of any district is easily 
made, and a process of elimination early takes place by which 
certain crops are discarded, for once and for all, as hopeless. 
But among the great variety of crops which may be cultivated 
in any region, justly to discriminate between the good and the 
very good, and to reject those which, though within the " limit 
of tolerance," as the money- writers say, are yet on the whole, 
and in the long run, not profitable, demands long, careful, and 
elaborate experimentation. Beyond this is the selection of varie- 
ties within the retained species, in which alone may reside the 
possibilities of success or failure ; the fortunate choice of varie- 
ties, among the almost indefinite number, often making all the 
difference between profit and no profit. 

To do this work satisfactorily requires great mental enter- 
prise and what we may call curiosity, a natural delight in ex- 
perimentation, a ready apprehension combined with persistency, 
in due measure, and with a sound judgment. To do this work 
both well and quickly, being neither slow in testing new and 
promising subjects, nor easily discouraged by the accidents which 
beset initiation and experiment, nor yet reluctant in drawing the 
proper inference from failure, would task the intellectual powers 
of any race of men. 

In Europe the knowledge of soils and of climate, on which 
the cultivation of large estates or personal properties is based, 
is the accumulation of hundreds of years of experience. In the 
United States the course of settlement has called upon our 
people to occupy virgin territory as extensive as Switzerland^ 
as England, as Italy, and latterly as France or Germany, every 
ten years. And it has been in meeting the necessity of a rapid, 
rough-and-ready reconnoissance of new soils under varying cli- 
matic conditions that the character of our cultivating class, as 
indicated under the previous title, has come most strikingly 
into play. 



AMEKICAN AdlMC'lLTrKK 85 

During the colonial period the work of experiment had so far 
advanced that ever}- crop but one (sorghum) now recognized in 
the official agricultural statistics of the country was cultivated 
in the region east of the Alleghenies. In the long course of 
experiment which had resulted in the naturalization of the 
crops now so well known in Xew England, tlie following had, 
according to Professor Brewer, been tried and rejected from our 
agriculture, viz. hemp, indigo, rice, cotton, madder, millet, spelt, 
lentils, and lucern. 

But while so much of the adaptations of our general climate 
to agriculture had been tlms easily mastered, much in the way 
of studying the agricultural capabilities of the infinite varieties 
of soil subject to this climate remained to be done within the 
region then occupied ; while with every successive extension 
of the frontier of settlement the same work has had to be done 
for the new fields brought under cultivation. To say with what 
quick-wittedness and openness of vision, what intellectual audac- 
ity yet strong common sense, what variety of resource and 
facility of expedients, what persistency yet pliancy, the Ameri- 
can farmer has met this demand of the situation would sound 
like extravagant panegyric. No other agricultural population 
of the globe could have encountered such emergencies without 
suffering tenfold the degree of failure, loss, and distress which 
has attended the westward movement of our population during 
the past one hundred years. 

Fourth. In asking what has been done biologically to promote 
American agriculture, we have reference to the application of 
the laws of vegetable and animal reproduction, as discovered 
by study and experiment, to the development of new varieties 
of plants and of animals, or to the perfection of individuals of 
existing varieties. In this department of effort the success of 
the American farmer has been truly wonderful, and our agri- 
culture has profited by it in a degree which it would be difficult to 
overestimate. Afewexamples will suffice for our pi'esent occasion. 

Receiving the running horse from England, we have so im- 
proved the strain that for the two years past, notwithstand- 
ing the unlimited expenditure upon racing studs in England, 



86 SELECTED READINGS IK ECONOMICS 

notwithstanding that English national pride is so much bound 
up in racing successes, and notwithstanding the grave disadvan- 
tages which attend the exportation of costly animals and their 
trial under the conditions of a strange climate, the honors of 
the British turf have been gathered, in a degree almost unknown 
in the history of British racing, by three American horses ; and 
while Iroquois was last summer winning his unprecedented 
series of victories, two if not three American three-year-olds, 
generally believed to be better than Iroquois, were contesting 
the primacy at home. 

The trotting horse we have created, — certainly the most use- 
ful variety of the equine species, — and we have improved that 
variety in a degree unprecedented, I believe, in natural history. 
Two generations ago the trotting of a mile in 2 m. 40 sec. was so 
rare as to give rise to a proverbial phrase indicating something 
extraordinary ; it is now a common occurrence. " But a few 
years ago," wrote Professor Brewer in 1876, "the speed of a 
mile in 2.30 was unheard of; now perhaps five or six hundred 
horses are known to have trotted a mile in that time." The 
number is to-day perhaps nearer one thousand than five hun- 
dred. Steadily onward have American horse raisers pressed the 
limit of mile speed, till, within the last three seasons, the amaz- 
ing figures 2.10 have been reached by one trotter and closely 
approached by another. 

Take an even more surprising instance. About 1800 we 
began to import in considerable numbers the favorite English 
cattle, the shorthorn. The first American shorthorn herdbook 
was published in 1846. In 1873 a sale of shorthorn cattle took 
place in western New York, at which a herd of 109 head were 
sold for a total sum of $382,000, one animal, a cow, bringing 
|;40,600 ; another, a calf, five months old, $27,000, both for 
the English market. To-day Devons and shorthorns are freely 
exported from Boston and New York to England to improve 
the native stock. 

In 1793 the first merino sheep, three in number, were intro- 
duced into this Qountry, though, unfortunately, the gentleman 
to whom they were consigned, not appreciating their peculiar 



AMERICAX AGRICULTURE 87 

excellencies, had them converted into mutton. Since that time 
American wool has become celebrated both for fineness of fiber 
and for weight of fleece. The finest fiber, by microscopic test, 
ever anywliere obtained, was clipped about 1850 from sheep 
bred in western Pennsylvania. More recently tlie attention of 
our woolgrowers has been especially directed to increasing the 
quantity rather than to improving the quality of the wool. 

Illustrations of the success of American agriculture, biologi- 
cally, might be drawn from the vegetable kingdom, did space 
permit. 

Fifth. To ask what has been done mechanically to promote 
our agriculture is to challenge a recital of the better half of the 
history of American invention. Remarkable as have been the 
mechanical achievements of our people in the diepartment of 
manufacturing industry, they have been exceeded in the pro- 
duction of agricultural implements and machinery, inasmuch as, 
in this branch of invention, a problem has been solved that does 
not present itself for solution, or only in a much easier shape, 
in those branches which relate to manufactures ; the problem, 
namely, of combining strength and capability of endurance with 
great lightness of parts. 

In no other important class of commercial products, except 
the American street carriage or field wagon, are these desired 
qualities so wonderfully joined as in the American agricultural 
machines, while the special difficulty arising from the necessity 
of repairs on the farm, far from shops where the services of 
skilled mechanics could be obtained, has been met by the exten- 
sion to tliis branch of manufacture of the principle of inter- 
changeable parts, a principle purely American in its origin. 
Through the adoption of this principle by the makers of agri- 
cultural machines, a farmer in the Willamette valley of Oregon 
is enabled to write to the manufacturer of his mower or reaper 
or thresher, naming the part that has been lost or become broken 
or otherwise useless, and to receive by return mail, third class, 
for which the government rate will be only two or three shill- 
ings, the lacking part, which, with a wrench and a screw-driver, 
he can fit into its proper place in fifteen minutes. 



88 SELECTED HEADINGS IN ECONOMICS 

All the agricultural machines of to-day are not originally of 
American invention, although most of them are, in every patent- 
able feature ; but I am not aware that there is at present in 
extensive use one which does not owe it to American ingenuity 
that it can be extensively used. Without the improvements it 
has received here, the best of foreign inventions in this depart- 
ment of machinery would have remained toys for exhibition at 
agricultural fairs, or machines only to be emploj^ed on large 
estates under favorable conditions.^ 

1 In the Yearbook of the Department of Agriculture for 1899 Mr. George K. 
Holmes presents, among others, the following facts concerning the use of agri- 
cultural machinery : 

Corn Cultivation and Harvesting 

Between 1855 and 1894 the following changes took place in the cultivation 
of corn. The time of human labor required to produce one bushel of corn on 
an average declined from 4 hours and 34 minutes to 41 minutes, and the cost of 
the human labor to produce this bushel declined from 35| cents to 10^ cents. 

In the earlier years the plow and harrow of that period were used ; the check 
rows were marked with the shovel plow ; the seed was dropped by hand from a 
bucket or pouch carried by the farmer, and covered with a hoe; the cultivating 
was done with a shovel plow ; knives were used for cutting the stalks from the 
ground by hand ; husking pegs were worn on the hand in husking ; the stalks, 
husks, and blades were cut into fodder with an old-time machine turned by 
hand, and the corn was shelled by hand, either on a frying-pan handle or on a 
shovel or by rubbing the cob against the unshelled ears. 

A radical change had taken place in 1894. The earth was loosened with a 
gang plow, and a disk harrow very thoroughly pulverized it. A corn planter 
drawn by a horse planted the corn, and the top soil was pulverized afterwards 
with a four-section harrow. 

When it came to harvesting the corn, a self-binder drawn by horses cut the 
stalks and bound them, and the shocks of stalks were then hauled to a machine 
which removed the husks from the ears, and in the same process cut the husks 
and the stalks and the blades into fodder, the power of the machine being sup- 
plied by a steam engine. 

Then came the slielling of the corn, which is one of the marvels of the 
changes that have been wrought by machines. In this case the machine oper- 
ated by steam shelled 1 bushel of corn per minute, while in the old way the 
labor of one man was required for 100 minutes to do the same work. 

******** 

Saving in the Cost of Producing Crops 

The potential saving in the cost of human labor on account of improved imple- 
ments, machines, and processes at the rate per bushel or ton, as the case may 
be, has been computed for seven of the principal crops of 1899 ; the comparison is 



AMERICAN ACiRicrT/rrRE 89 

But more, even, than the ingenuity of inventors and ni.anu- 
facturers has l)een required to give to agricultural machinery 
the wide introduction and the marvelously successful applica- 
tions it has had in the cultivation of our staple crops east and 
west. " Experienced mechanicians," says Professor Hearn, " as- 
sert that, notwithstanding the progress of machinery in agri- 
culture, there is probably as much sound, practical, labor-saving 
invention and machinery unused as there is used ; and that it is 
unused solely in consequence of the ignorance and incompetency 
of the work people." This remark, which is perfectly true of 
England, and the force of which would have to be multiplied 
fourfold in application to the peasantry of France or Austria, 
utterly fails of significance if applied to the United States. It 
is because mechanical insight and aptitude, in the degree re- 
specting which the term " mechanical genius " may properly be 
used, are found throughout the mass of the American people, 
that these products of invention and skill have been made of 
service on petty farms all over our land, and in the most remote 
districts wherever the divine rage of the peddler has carried him. 
Lack of mechanical insight and aptitude, in the full degree requi- 
site for the economical use and care of delicate and complicated 

between the old-time methods of production, in which hand labor was assisted 
only by the comparatively rude and inefficient implements of the day, and those 
of the present time, when hand labor has not onlj' the assistance of highly efficient 
and perfected implements and machines, but has been considerably displaced 
by them. The saving in the cost of human labor in cents, per unit of product, 
permits a very forcible statement of its equivalent in money by means of a com- 
putation consisting of the multiplication of the saving per unit into the crop of 
1899. The result expresses the potential labor saving in the production of seven 
crops of that year, and is not an aggregate of the saving of human labor in the 
cost of producing the crops for all of the years between the earlier and the later 
ones, during which time this economizing and displacement of human labor has 
taken place. In the case of the crop of corn, the money measure of the saving 
of human labor required to produce it in 1899 in the most available economic 
manner, as compared with its production in the old-time manner, was •'?523,276.- 
642; wheat, 879,194,867; oats, •'?52,8r)6.200; rye, §1,408,950 ; barley, $7,323,480; 
white potatoes, §7,366,820 ; hay, §10,034,868. 

The total potential saving in the cost of human labor for these seven crops 
of 1899, owing to the possible utilization of the implements, machines, and 
methods of the present time, in place of the old-time manner of production, 
reaches the stupendous amount of '5681,471,827 for this one year. — Ed. 



90 SELECTED READINGS IN ECONOMICS 

machinery, is almost unknown among our native northern people. 
Not one in ten but has the mechanical sense and skill necessary 
for the purpose. 

But it has not been through the invention and wide applica- 
tion of agricultural machinery alone that the peculiar and ex- 
traordinary mechanical genius of our people has increased our 
national capacity for agricultural production. In what we may 
call the daily commonplace use of this faculty, throughout what 
may be termed the pioneer period, and, in a diminishing degree, 
through each successive stage of settlement and industrial devel- 
opment, the American farmer has derived from this source an 
advantage beyond estimation in dealing with the perpetually 
varying exigencies of the occupation and cultivation of the soil. 

Perhaps we cannot better illustrate this than by referring to 
a recent exhibition of our national activity in another field. 

When the War of the Rebellion broke out no one supposed 
that the American armies, hastily raised and commanded by 
men tried only in civil affairs, were to give lessons to the engi- 
neers of Europe. Yet, after our war had been going on about 
two years, it came to be apprehended that a new force had been 
introduced into warfare, causing an almost total revolution in 
field operations. The soldiers of the Union and Confederate 
armies, left almost to themselves in the matter, had gradually 
but rapidly developed a system of field intrenchments the like 
of which had never been executed by any army or conceived by 
any engineer. Not only between night and morning, but often 
in the course of four or even three hours, was it found possible 
for infantry to cover their front with works adequate to a 
complete protection from musketry and from the casual fire of 
field guns. 

This system of intrenchment was a spontaneous, original 
creation on the part of many different bodies of troops. The 
officers who served most uninterruptedly through the campaigns 
of 1862 and 1863 could hardly presume to say when and where 
it first took distinct and recognizable shape. Those who have 
followed the course of military opinion in Europe and are famil- 
iar with the history of recent wars there, know how greatly the 



AMERICAN AGRICULTURE 91 

theory and practice of field operations have been changed as the 
result of the introduction of the American system of rapid, 
rough-and-ready intrenchment. The works along the Rapidan, 
the Pamunkey, or the Appomattox were contemptible enough, 
viewed as finished products, irrespective of the time expended ; 
but in the fact that such works could be thrown up in the inter- 
val between the arrival of the head and of the rear of a column, 
or in half a night, lay possibilities of almost infinite consequence 
to the strategist. 

Now just what, in spirit, our soldiers were doing in 1863, 1 864, 
and 1865 our farmers had been doing all through the pioneer 
period of every new state, and though in a lower degree, in 
meeting the later and less pressing exigencies of agricultural 
extension and improvement. The way in which the pioneer of 
New England birth or blood, stopping his cattle in a wilderness, 
miles from any neighbor, and tumbling ax and spade, bundles 
and babies out upon unbroken ground, which he was to make 
his home, set about the task of providing shelter for his children 
and his animals, clearing the ground and getting a first crop out 
of tiie soil, were not admirable merely as an exhibition of cour- 
age, faith, and enterprise ; but, if we look at the results accom- 
plished in the light of the time and labor expended, it constitutes 
a triumph of mechanical, we might say of engineering, genius. 

The simple record of the first five yeais on a pioneer farm on 
the Western Reserve of Ohio, were it possible to set it forth in 
such a way that one could see that life in the wilderness lived 
over again, that work in the wilderness done over again, would 
produce upon a mind capable of appreciating the highest human 
achievements a stronger impression of the intellectual power 
and originality of the American people than all the literature 
we have accumulated since Joel Barlow wrote his " Vision of 
Columbus." 

Sixth. When we ask what has been done chemically to pro- 
mote American agriculture, we reach at once the most charac- 
teristic dilTeren(;es between our cultivation of the soil and that 
prevailing in older countries: and we have, at the same time, 
the explanation of the contemptuous manner in which our 



92 SELECTED READINGS IN ECONOMICS 

agriculture is almost universally spoken of by European writers. 
Did I say contemptuous ? The word " indignant " would often 
better express the feeling aroused in these writers by the con- 
templation of our dealing with the soil, which, from their point 
of view, they cannot but regard as wasteful, wanton earth 
butchery. " In perusing the volumes of Messrs. Parkinson, 
Faux, Fearon, and others," says Hinton, in his " History of the 
United States," "some hundred pages of invective occur because 
the Americans will persist in taking up fresh land instead of 
the more costly process of manuring a worn-out soil — will raise 
extensive crops instead of highly cultivating and beautifying a 
small space." 

A few British tourists, indeed, notably Professor Johnston 
and Mr. James Caird, have shown a somewhat juster apprecia- 
tion of American agriculture ; but even these have given only 
a qualified approval of our method of dealing with the soil, and 
have fallen ludicrously short of the truth in attempting to fix 
the limit of time during which this policy could be maintained. 

Johnston, one of the best writers of his time on agricultural 
chemistry, publishing his "Notes on North America" in 1851, 
expressed his belief that the exportable wheat of the continent, 
as a whole, was " already a diminishing quantity." In the light 
of to-day the following reads somewhat strangely : 

It is fair and reasonable, therefore, I think, to condude, until we have 
better data, that the wheat-exporting capabilities of the United States are 
not so great as they have by many in Great Britain hitherto been supposed ; 
that they have been overstated on the spot, and that our wheat growers at 
home have been unduly alarmed by these distant thunders, the supposed 
prelude of an imaginary torrent of American wheat, which was to over- 
whelm everything in Great Britain, involving farmei's and landlords in one 
common ruin. 

Undue alarm ; distant thunders ; supposed prelude ; imagi- 
nary torrent ! Nothing so good as that had been said since the 
profane scoffer told the son of Lamech to go along with his old 
ark; it wasn't going to be much of a shower after all. 

What, then, has been this American way of dealing with the soil 
to which our English brethren have so strongly made objection? 



america:^^ agriculture 93 

The American people finding themselves on a continent con- 
taining an almost limitless breadth of arable land of fair average 
fertility, having little accumulated capital and many urgent occa- 
sions for ever}' unit of labor power they could exert, have elected 
— and in so doing they are, I make bold to say, fully justified, 
on sound economical principles — to regard the land as practi- 
cally of no value and labor as of high value ; have, in pursuance 
of this theory of the case, systematically cropped their fields, 
on the principle of obtaining the largest crops with the least 
expenditure of labor, limiting their improvements to what was 
required for the immediate purpose specified, and caring little 
about returning to the soil any equivalent for the properties 
taken from it by the crops of each successive year. What has 
been returned has been only the manure generated incidentally 
to the suj)port of the live stock needed to work the farm. In 
that which is for the time the great wheat and corn region of 
the Ignited States the fields are, as a rule, cropped continuously, 
without fertilization, year after year, decade after decade, until 
their fertility sensibly declines. 

Decline under this regimen it must, sooner or later, later or 
sooner, according to the crop and according to the degree of 
origrinal strenjjth in the soil. Resort must then be had to new 
fields of virgin freshness, which with us in the United States has 
always meant " the AVest." When Professor Wharton wrote, 
the granary of the continent liad already moved from the flats 
of the lower St. Lawrence to the Mississippi valley, the north- 
and-south line Avhich divided the wlieat product of the United 
States into two equal parts being approximately the line of the 
82d meridian. In 1860 it was the 85th ; in 1870, the 88th ; in 
1880, tlie 89th. 

Meanwliile what becomes of tlie regions over which this 
shadow of partial exhaustion passes, like an ecli{)se, in its 
westward movement? The answer is to be read in the condi- 
tion of New England to-day. A part of the agricultural popu- 
lation is maintained by raising upon limited soils the smaller 
crops, — garden vegetables and orchard fruits, — and producing 
butter, milk, poultry, and eggs' for the supply of the cities and 



94 SELECTED EEADINGS IN ECONOMICS 

manufacturing towns which had their origin in the flourishing 
days of agriculture, which have grown with the age of the com- 
munities in which they are planted, and which, having been 
well founded when the decadence of agriculture begins, flourish 
the more on this account, inasmuch as a second part of the agri- 
cultural population, not choosing to follow the westward move- 
ment of the grain culture, are ready with their rising sons and 
daughters to enter the mill and factory. 

Still another part of the agricultural population gradually 
becomes occupied in the higher and more careful culture of 
the cereal crops on the better portion of the former breadth of 
arable land, the less eligible fields being allowed to spring up 
in brush and wood ; deeper plowing and better drainage are 
resorted to ; fertilizers are now employed to bring up and to 
keep up the pristine fertility of the soil. 

And thus begins the serious systematic agriculture of an old 
state. Something is done in wheat, but not much. New York 
raised thirteen million bushels in 1850 ; thirty years later, 
when her population had increased 70 per cent, she raises thir- 
teen million bushels. Pennsjdvania raised fifteen and a half 
million bushels in 1850, with a population of two and a quarter 
millions ; in 1880, with four and a half million inhabitants, she 
raises nineteen and a half million bushels. New Jersey raised 
one million six hundred thousand bushels then ; she raises one 
million nine hundred thousand now.^ , 

More is done in corn, that magnificent and most prolific cereal ; 
more still in buckwheat, barley, oats, and rye. Pennsylvania, 
though the tenth state in wheat production, stands first of all 
the Union in rye, second in buckwheat, and third in oats ; New 
York, the same New York whose Mohawk and Genesee valleys 
were a proverb through the world forty years ago, is but the 
thirteenth state in wheat, but is first in buckwheat, second in 
barley, and third in rye.^ 

1 In 1899 New York produced but 10,412,675 bushels of wheat, and New 
Jersey but 1,902,590. — Ed. 

2 lu 1899 New York stood second in buckwheat, seventh in barley, and third 
in rye. — Ed. 



AMERICAN AGRICULTURE 05 

It is in the way described that Americans have dealt with the 
soil opened to them by treaty or by purchase. And I have no 
hesitation in saying that posterity will decide, first, that it was 
both economically justified and politically fortunate that this 
should be done ; and, secondly, that what has been done was 
accomplished with singular enterprise, prudence, patience, intel- 
ligence, and skill. 

It will appear, from what has been said under the preceding 
titles, that I entertain a somewhat exalted opinion concerning 
American agriculture. Indeed I do. To me the achievements 
of those who in this new land have dealt with the soil, under 
the conditions so hurriedly and imperfectly recited, surpass the 
achievements of mankind in any other field of economic effort. 
With the labor power and capital power which we have had to 
expend during the past one hundred years, to have taken from 
the ground these hundreds, these thousands of millions of tons 
of food, fibers, and fuel for man's uses, leaving the soil no more 
exhausted than we find it to-day ; and, meantime, to have built 
up, out of the current profits of this primitive agriculture, such 
a stupendous fund of permanent improvements, in provision for 
future needs and in preparation for a more advanced industry 
and a higher tillage, — this certainly seems to be not only beyond 
the achievement, but beyond the power, of any other race of men. 



4. The Future of American Agriculture^ 
Faults of the Past 

The mighty production of the farm for one third of a cen- 
tury has come out of an agriculture having many faults. In a 
large degree there has been one-crop farming ; crop rotation, as 
practiced, has often been too short and unwise ; tlie grasses and 
leguminous forage crops have been neglected, domestic animals 
have not sufficiently entered into the farm economy, and many 
dairy cows have been kept at a loss. The fertilizers made on 

1 From the report of Honunible James Wilson, Secretary of Agriculture, for 
the year I'.tOC. 



96 SELECTED READmGS IN ECONOMICS 

the farm have been regarded as a nuisance in some regions ; they 
have been wasted and misapplied by many farmers ; ^ humus 
has not been plowed into the ground as generally as it should 
have been; and in many a place the unprotected soil has been 
washed into the streams. 

1 In the Yearbook of the Department of Agriculture for 1902 Mr. George K. 
Holmes presents the following facts concerning the use of fertilizers : 

There are still extensive regions in the United States where barn manure is 
considered a farm nuisance. In a county of Oregon the neighbor is welcome 
to haul away this manure, and that neighbor is likely to be a thrifty German 
with a large garden ; in other Oregon counties the manure is burned. In a 
California county the manure is dumped into ravines ; it goes to the creek in 
Oklahoma ; it is hauled to a hole in the ground or put on one side of the field 
in Kansas ; South Dakota farmers burn it to be rid of it, and sometimes burn it 
for fuel. In North Dakota farmers haul barn manure to piles and leave it there 
until it disappears ; farmers in Missouri deposit it by the roadside, and in Idaho 
scrapers are used, and it is " often seen piled as high as a barn." 

In many counties between the Mississippi river and the Pacific ocean farmers 
not only find barn manure a nuisance, but they have a grievance against it, 
claiming in South Dakota that it produces dog fennel, elsewhere that it pro- 
duces other weeds, and in various counties that it has such an effect of "poison- 
ing " the soil that farmers are afraid of it. The owner of a large California wheat 
ranch required a tenant last year to spread the barn manure of the ranch upon 
the wheat land, but the tenant, after doing so, set fire to the stubble and burned 
the manure. 

In semi-arid regions barn manure needs to be used cautiously on unirrigated 
land; in the wheat lands of California it is more or less visible for four or five years 
after its application to the land. The practice of two hundred years ago survives 
in some parts of the South : cattle are penned upon the land to increase its fer- 
tility, and the pen is shifted as the owner desires. 

In a large portion of the North Central States barn manure is removed to pre- 
vent accumulation and deposited upon the fields throughout the winter, to be 
plowed under in the spring. In the East it is allowed to accumulate until spring, 
when it is deposited upon the land just before plowing. The use of this fertilizer 
for top-dressing grass land is very common throughout the principal portion of 
the United States wherever it is used in considerable quantities. 

Barn manure is more generally applied to corn than to any other crop, 
although a liberal application of it is made to tobacco, potatoes, and vegetables. 
Commercial fertilizer is liberally used in cotton production, in the more inten- 
sive agriculture of fruit and vegetable raising, and in growing small gi-ains, to 
which it is applied with a seeder at time of seeding. The use of barn manure is 
greatest in the East, while commercial fertilizers have the greatest use in the 
cotton belt. The use of any kind of barn or commercial fertilizer is more and 
more sporadic westward from. Indiana, and commercial fertilizer is hardly any- 
where seen west of the Mississippi river except on vegetable and fruit farms. 
— Ed. 



A.MEK1CAN AGRICULTURE 97 

Economic Justification 

This, in few words, is the historic story of agriculture in a 
new country ; yet the course of agriculture in this country, bad 
as it may seem in its unscientific aspect, has had large economic 
justification. While picMieers, poor and in debt, are establishing 
themselves they have no capital, even if they have the knowledge 
with which to carry on agriculture to the satisfaction of the 
critic. They must have buildings, machinery, and live stock, 
even at the expense of the soil. 

Millions upon millions of acres of fresh land have been coming 
into production faster than domestic consumption has required, 
and, at times, beyond the takings of importing countries. For 
many years the farmer was threatened with forty-cent wheat, 
twenty-cent corn, and five-cent cotton, and at times he was face to 
face with the hard conditions implied in these destructive prices. 
A more scientific agriculture would have raised wheat that no 
one wanted to eat, corn to store on the farm and perhaps even- 
tually to be used for fuel, and cotton not worth the picking. 

Larger Production Indicated 

So it has happened, with reason, tliat the production per acre 
lias been low ; but there is no likelihood that low production is 
fixed and that the farmer must continue his extensive system. 
AV}ien consumption demands and when prices sustain, the farmer 
will respond. The doors of knowledge and example are opening 
wider to him. 

There is abundant information concerning crop rotation,^ the 
dependence of high production upon the domestic animals, con- 
cerning grasses, clover, and alfalfa, and concerning the mixing 

1 In the Yearbook of the Department of Agriculture for 1902 Mr. George K. 
Holmes gives the following account of the present practice in the rotation of crops : 

Little systematic rotation of crops is found in this country. ( )ne-crop farm- 
ing is still practiced in some parts, as corn on bottom land or cotton in the South, 
corn or wheat in the North Central States and tiie Southwest, and wheat on the 
Pacific coast. The constant cro])ping of the "corn bottoms'" of the South and 
of the Nortli Central States is sustained to some extent by the annual deposit 



98 SELECTED READINGS IN ECONOMICS 

of vegetable matter with the soil. Systems of farm manage- 
ment and soil treatment have assumed greater importance in 
their effect upon production ; and there is the breeding of j)lants, 
which alone can multiply production so as to glut the market. 

Multiplication of the Cotton Crop 

If there were need to do so, the cotton farmer and planter 
could double the present crop of two fifths of a bale per acre, 
and the feat would need nothing more than demonstrated and 
well-understood principles of farm management. It would be 
no work of magic to multiply the production of cotton per acre 
by three and get a bale and a quarter ; and, besides this, the 

from freshets. The cotton land receives commercial fertilizer, and much of it is 
rested every few years, but is in a low condition of fertility. The continuity of 
wheat or corn in the North Central and Pacific States is broken by complete 
rest in many counties, and the soil is becoming less productive. Rest for the 
soil is not a common practice in the North Central States ; the extension of crop 
rotation is preventing this. 

Haphazard is a mild word to describe the impression given by the reports of 
correspondents with regard to the rotation of crops in many counties and parts 
of counties of the United States. Although there may be an annual change of 
crop on the same land, this change is so uncertain, so unsystematic, that at first 
it seems impossible to establish order out of the chaotic mass of particulars. 
Some fundamentals may be discerned, however, in a broadly general sense. 

Throughout the region north of the cotton belt there is a three-crop rotation 
which may be regarded as a system with innumerable variations. These crops are 
corn, small grain (wheat, oats, barley, rye), and grass or legumes ; and the period 
covered by the rotation in some of its variations is commonly four or five years 
and not infrequently extends to eight or ten or more years, the length of the period 
depending mostly upon the ability of the grass or legumes to remain productive. 
Sooner or later most of the tillable land that is not bottom land or is not devoted 
to one crop, fruit or vegetables, passes through this rotation, but often with in- 
terruptions or the admixture of. other crops in the effort to adapt the products 
to markets, prices, soil, weather, and the special or general objects of farming. 

In some regions which produce considerable tobacco, potatoes, or beans, a 
portion of the land that would otherwise be given to corn may be given to one 
of these crops in this general rotation. 

This fundamental rotation north of the cotton belt will be better understood 
by noticing the variations presented in the list of leading rotations contained in 
this paper. 

In the cotton belt, as far as any systematic rotation of crops is discoverable, 
it is cotton and corn, but this is subject to the repetition of cotton because of 
larger area than corn, to the resting of the soil for a year, to the inclusion of 



AMERICAN AdKlCL'LTUKE 99 

planter has more than three times the present actual acreage in 
cotton readily available and awaiting his use. More than the 
present area of cotton can thus be grown in a three-year crop 
rotation when the needs of the world demand it. 

Increase of Corn 

In accordance with principles demonstrated, known, and appli- 
cable, hints of which have been given, the corn crop per acre 
can be increased by one half within a quarter of a century, and 
without any pretense that the limit has been reached. No 
wizard's services are needed for this, but just education. 

3Iore Wheat per Acre 

The same statement is applicable to wheat. There is no sen- 
sible reason why half as much more wheat may not be had from 
an acre within less than a generation of time. It is only a ques- 
tion of knowledge, of education, of cultural system, and of 
farm management, all of which learning is and will be at the 
service of the farmer as he needs it. 

cowpeas, and of various small crops of sorshum, oats, sweet potatoes, etc., iu 
the course of several years, during which the primary rotation may have occurred 
two or three times. Variations of the primary cotton rotation will be observed 
in the subsequent list of leading rotations. 

In the arid and semi-arid regions, which comprise that part of the country 
lying west of the one hundredth meridian, except a border on the Pacific ocean, 
the crop rotation, outside of vegetable and fruit production, tends to maintain 
the growth of alfalfa as long as possible. In the reseeding year wheat or other 
small grain is sown. There is, however, considerable resting of land throughout 
this entire region as a poor sub.stitute for renewing the fertility of the land by 
the use of alfalfa, for alfalfa is not gi-own where grain is the chief product. In 
western Oregon and Washington, where the rainfall permits the introduction of 
gras.ses, the rotation chiefly includes only small grains and grasses, and in some 
counties only the small grains. 

For California it is impossible to arrive at a fundamental crop rotation on 
account of radical differences in soil, water supply, and climate. The reports 
received show the practices to be almost as numerous as the counties, and indeed 
some counties have several practices in different parts. With regard to wheat 
and barley the general practice is that the land rests every second or third year, 
in which it produces nothing but weeds and wild oats. Some Pacific ("oast rota- 
tions are given in the list of leading rotations. — Ed. 

LOFC. 



100 SELECTED READINGS IN ECONOMICS 

Gain in Other Crops 

Equally feasible is a 50-per cent increase in the crops per acre 
of oats, barley, rye, and buckwheat. Potatoes, instead of growing 
less than one hundred bushels per acre, should double their pro- 
duction. Wherever only six hundred to eight hundred pounds of 
tobacco are got from an acre, three fourths of a ton is the prospect. 

Fruits, berries, and vegetables have a future too large to esti- 
mate. The cannery and the railway fast freight and refrigera- 
tor car have overcome obstacles of latitude, of longitude, and of 
season, and there is every indication that the farmer can supply 
any possible demand for these foods at home or abroad. 

Animal Products 

Farmers will learn how to feed more prolific breeds and strains 
of swine than the ones which they are now chiefly raising, and 
thus will pork and its products be increased per individual of 
the permanent stock of hogs. One fourth of the dairy cows 
of the country do not pay for their feed, and more than half of 
them do not return any profit; in proportion as the dairyman 
weighs the milk of each cow and applies the Babcock test will 
he increase the supply of milk, butter, and cheese. It is merely 
a matter of education. 

Poultry is one of the steady and helpful sources of farm in- 
come. Movements are already on foot which may be expected 
to increase the egg production per hen by at least a dozen per 
year within a generation ; and there are poultrymen, who are 
not enthusiasts, who foretell double that increase. If the hens 
of this year had each laid a dozen eggs more than they did, the 
increased value of this product would have been possibly fifty 
million dollars. 

A Matter of Education 

The farmer will not fail the nation if the nation does not fail 
the farmer. He will need education to know the powers of the 
soil which are now hidden from him. The prospective yearly 



AMERICAN AGRICULTUKE 101 

expenditure of ten million dollars for educational and research 
work by nation and states, with such increases as may come from 
time to time, must have enormous effects. There may be agri- 
cultural schools for the small children and agricultural high 
schools for the larger ones, and their education will be con- 
tinued in the colleges.^ 

The work of the Department of Agriculture has already had 
results which are valued at hundreds of millions of dollars annu- 
ally, and yet the department feels that it has barely crossed the 
threshold of its mission of discovery and education. Cooperating 
to the same ends are sixty experiment stations in fiftj^-one states 
and territories, the sixty-three agricultural colleges, thousands of 
farmers' institute meetings yearly, many excellent agricultural 
periodical publications, and new instructive books. Then there 
is a new line of work which is so productive of results that it 
is constantly extending, and that is the demonstration farm, — 
the encouragement of individual farmers to change their agricul- 
ture so as to multiply their yields and their profits, and thus 
afford object lessons to other farmers. 

Thus it appears that forces are now at work which will 
very considerably increase the production of the farms within 
a generation, and which promise to continue the increase 

1 The following facts concerning agricultural education were presented in 
the Yearbook of the Department of Agriculture for 1902 : 

It may be justly claimed that the United States has in its National Depart- 
ment of Agriculture and the state agricultural experiment stations the most 
complete system of agricultural research in the world, and that the results 
obtained through these agencies have had a wider application and have influ- 
enced to a greater extent the masses of farmers than has been the case in any 
other country. Agricultural experiment stations are now in operation in every 
state and territory of the United States, including Alaska, Hawaii, and I'orto 
Kico, and steps have been taken under government auspices to establish agencies 
for agricultural investigation in the Philippine Islands. There are sixty such 
stations, employing nearly a thousand trained scientific and practical men in 
their work. 

The annual income of these stations in 1002 was 81,328,847.37, of which sum 
$720,000 came from the federal government and §608,847.37 from state appro- 
priations and other sources. During the fourteen years of their existence as a 
national enterjjrise there has been expended in their maintenance about -S'H.OOO,- 
000. of which .510,000,000 came from the national Treasury and about §4,000,- 
000 from state sources. — Ed. 



102 SELECTED EEADINGS IN ECONOMICS 

indefinitely. He who would write the last chapter of the prog- 
ress of the agriculture of this country must await the procession 
of the centuries. 

Opening of a New Era 

The farmer is financially in a position now to do what he 
could not have done previous to the recent years of his pros- 
perity. National welfare has been promoted by few revolutions 
in asfricultural economics to the extent that it has been and will 
be promoted by ten-cent cotton. The greater part of the cotton 
planters are out of their former bondage to future maintenance, 
and they are paying no enormous rates of interest for advance- 
ments, — rates which were estimated fifteen years ago to average 
40 per cent a year. 

In the Middle West the prosperity of the farmers during the 
last half dozen years and more has advanced in such mass and 
with such speed that no parallel can be found in the economic 
history of agriculture. One of the great changes that have come 
over this region is the conversion of a million agricultural 
debtors, paying high rates of interest and finding great diffi- 
culty in procuring the wherewithal out of prices much too 
low, into financially independent farmers, debt free and beg- 
ging the banks to receive their savings at as small a rate of 
interest as 2 per cent. 

Poiver of the Farmers' New Capital 

Farmers are using their new capital to abolish the waste 
places of the land. The river is leveed and alluvial bottoms 
subject to overflow become worth hundreds of dollars per acre 
for vegetables ; a marsh is drained by ditches and tiles, and 
celery makes it the most valuable land in the county ; semi-arid 
land is constantly cultivated so as to make a mulch of finely 
pulverized earth on the surface, and the crops that it will grow 
make the farmer prosperous ; durum wheat or alfalfa is intro- 
duced and again the semi-arid wastes are made to do the will 
of the cultivator ; leguminous plants give humus and nitrogen 



AMERICAN AGRICULTURE 103 

to the sandy waste, to the use and profit of the farmer ; the 
unused rocky, stony field or mountain side, offensive both to 
the economic and to the lesthetic eye, blossoms with the apple, 
the peach, the pear, and the plum, and adds to the evidences 
that every square foot of the land may be made productive 
unless it is arid ; and even then irrigation works, as far as water 
is available, swell the evidence. Along all of these lines of pro- 
duction farmers are using their newly acquired capital and are 
progressing as never before in their prosperity. 

Formerly there was an abundance of farm labor and a dearth 
of farming capital ; now these conditions are reversed, and labor 
is scarce and capital abundant. Notwithstanding the farmers' 
inability to do some things for want of labor, the new situation 
is a great improvement upon the old one. The farmer can now 
employ every labor-saving device and thus reduce both the 
labor and the cost of production ; he can raise his land to a 
higher state of fertility than can be made by chemical fertilizers 
alone, because he can advance the needed capital for permanent 
soil improvement and is in a position to await results ; he can 
produce things that require years for the first crop, as in the 
case of fruits ; he can provide such capital as is needed to dis- 
tribute his products, and thus C()()peration is open to him to a 
greater extent than ever before ; he can secure a better educa- 
tion for his children to the end, among other things, that they 
may do better with the old farm than he did. 



CHAPTER V 

THE ORGANIZATION OF PRODUCTION BEFORE AND 
AETER THE INDUSTRIAL REVOLUTION 

1. Adam Smith's Criticism of the Policy of the Gilds ^ 

The policy of Europe occasions a very important inequality 
in the whole of the advantages and disadvantages of the different 
employments of labour and stock, by restraining the competition 
to a smaller number than might otherwise be disposed to enter 
into them.^ 

The exclusive privileges of corporations are the principal 
means it makes use of for this purpose. 

The exclusive privilege of an incorporated trade necessarily 
restrains the competition, in the town where it is established, 
to those who are free of the trade. To have served an appren- 
ticeship in the town, under a master properly qualified, is com- 
monly the necessary requisite for obtaining this freedom. The 
bye-laws of the corporation regulate sometimes the number of 
apprentices which any master is allowed to have, and almost 
always the number of years which each apprentice is obliged 
to serve. The intention of both regulations is to restrain the 
competition to a much smaller number than might otherwise be 
disposed to enter into the trade. The limitation of the number 
of apprentices restrains it directly. A long term of apprentice- 
ship restrains it indirectly, but as effectually, by increasing the 
expense of education. 

In Sheffield no master cutler can have more than one appren- 
tice at a time, by a bye-law of the corporation. In Norfolk and 

1 Wealth of Nations, Bk. I, chap, x, Part II. 

2 Smith is discussing in this chapter " Wages and Profit in the Different 
Employments of Labor and Stock." He treats of the gilds, accordingly, as one 
of the causes which produce differences in the wages and profits derived from 
different employments. — Ed. 

104 



THE OllGAXiZATION OF INDUSTRY 105 

Norwicli no master weaver can liave more than two apprentices 
under pain of forfeiting five pounds a month to the king. No 
master hatter can have more than two apprentices anywhere 
in England, or in the English plantations, under pain of for- 
feiting five pounds a month, half to the king, and half to him 
who shall sue in any court of record. Both these regulations, 
though they have been confirmed by a public law of the king- 
dom, are evidently dictated by the same corporation spirit which 
enacted the bye-law of Sheffield. The silk weavers in London 
had scarce been incorporated a year, when they enacted a bye- 
law, restraining any master from having more than two appren- 
tices at a time. It required a particular act of parliament to 
rescind this bye-law. 

'•' Seven years seem anciently to have been, all over Europe, 
the usual term established for the duration of apprenticeships 
in the greater part of incorporated trades. All such incorpora- 
tions were anciently called universities; which indeed is the 
proper Latin name for any incorporation whatever. The uni- 
versity of smiths, the university of tailors, etc., are expressions 
which we commonly meet with in the old charters of ancient 
towns. When those particular incorporations which are now 
peculiarly called universities were first established, the term of 
years which it was necessary to study, in order to obtain the 
degree of master of arts, appears evidently to have been copied 
from the term of apprenticeship in common trades, of which the 
incorporations were much more ancient. As to have wrought 
7 years under a master properly qualified was necessary, in 
order to entitle any person to become a master, and to have 
himself apprentices in a common trade; so to have studied 
7 years under a master properly qualified, was necessary to 
entitle him to become a master, teacher, or doctor (words anciently 
synonymous) in the liberal arts, and to have scholars or appren- 
tices (words originally synonymous) to study under him. /^ 

By the 5th of Elizabeth, commonly called the Statute of 
Apprenticeship, it was enacted that no person should for the 
future exercise any tiade, craft, or mysteiy at that time exer- 
cised in England, unless lie had previously served to it an 



106 SELECTED EEADINGS IN ECONOMICS 

apprenticeship of seven years at least; and what before had 
been the bye-law of many particular corporations, became in 
England the general and public law of all trades carried on in 
market towns. For though the words of the statute are very 
general, and seem plainly to include the whole kingdom, by 
interpretation its operation has been limited to market towns, 
it having been held that in country villages a person may 
exercise several different trades, though he has not served a 
seven years' apprenticeship to each, they being necessary for 
the conveniency of the inhabitants, and the number of people 
frequently not being sufficient to supply each with a particular 
set of hands. 

By a strict interpretation of the words, too, the operation of 
this statute has been limited to those trades which were estab- 
lished in England before the 5th of Elizabeth, and has never 
been extended to such as have been introduced since that time. 
This limitation has given occasion to several distinctions which, 
considered as rules of police, appear as foolish as can well be 
imagined. It has been adjudged, for example, that a coach- 
maker can neither himself make, nor employ ' journeymen to 
make, his coach-wheels, but must buy them of a master wheel- 
wright; this latter trade having been exercised in England 
before the 5th of Elizabeth. But a wheelwright, though he 
has never served an apprenticeship to a coachmaker, may either 
himself make or employ journeymen to make coaches, the trade 
of a coachmaker not being within the statute, because not exer- 
cised in England at the time when it was made. The manu- 
factures of Manchester, Birmingham, and Wolverhampton, are 
many of them, upon this account, not within the statute ; not 
having been exercised in England before the 5th of Elizabeth. 

In France the duration of apprenticeships is different in dif- 
ferent towns and in different trades. In Paris five years is the 
term required in a great number ; but before any person can be 
qualified to exercise the trade as a master, he must, in many of 
them, serve five years more as a journeyman. During this latter 
term he is called the companion of his master, and the term 
itself is called his companionship. 



THE ()R(;anizati()n of industky 107 

In Scotland there is no j^eneral law which regulates univer- 
sally the duration of apprenticeships. The term is different in 
different corporations. Where it is long, a part of it may gen- 
erally be redeemed by paying a small fine. In most towns, too, 
a very -small fine is sullicient to purchase the freedom of any 
corporation. The weavers of linen and hempen cloth, the prin- 
cipal manufactures of the country, as well as all other artificers 
subservient to them — wlieelmakers, reelmakers, etc. — may 
exercise their trades in any town corporate without paying any 
fine. In all towns corporate all persons are free to sell butcher's 
meat upon any lawful day of the week. Three years is in Scot- 
land a term of apprenticeship in some very nice trades ; and I 
know of no country in Europe in which corporation laws are so 
little oppressive. 

The property which every man lias in his own labour, as it is 
the original foundation of all other property, so it is the most 
sacred and inviolable. The patrimony of a poor man lies in the 
strength and dexterity of his hands ; and to hinder him from 
employing this strength and dexterity in what manner he thinks 
proper without injury to his neighbour, is a plain violation of 
this most sacred property. It is a manifest encroachment upon 
the just liberty both of the workman and of those who might 
be disposed to employ him. As it hinders the one from working 
at what he thinks proper, so it hinders the others from employ- 
ing whom they think proper. To judge whether he is fit to be 
employed, may surely be trusted to the discretion of the employ- 
ers. The affected anxiety of the law-giver lest they should 
employ an improper person, is evidently as impertinent as it is 
oppressive. 

The institution of long njiprenticeships can give no security 
that insufficient workmanship shall not frequently be exposed 
to public sale. When this is done it is generally the effect of 
fraud, and not of inal)ility ; and the longest apprenticeship can 
give no security against fraud. Quite different regulations are 
necessary to prevent this abuse. The sterling mark on plate, 
and the stamps on linen and woollen cloth, give the ])urcliaser 
much greater security than any statute of apprenticeship. 



108 SELECTED EEADINGS IN ECONOMICS 

He generally looks at these, but never thinks it worth while 
to inquire whether the workmen had served a seven years' 
apprenticeship. 

The institution of long apprenticeships has no tendency to 
form young people to industry. A journeyman who works by 
the piece is likely to be industrious, because he derives a benefit 
from every exertion of his industry. An apprentice is likely to 
be idle, and almost always is so, because he has no immediate 
interest to be otherwise. In the inferior employments, the 
sweets of labour consist altogether in the recompense of labour. 
They who are soonest in a condition to enjoy the sweets of it 
are likely soonest to conceive a relish for it, and to acquire the 
early habit of industry. A young man naturally conceives an 
aversion to labour when for a long time he receives no benefit 
from it. The boys who are put out apprentices from public 
charities are generally bound for more than the usual number 
of years, and they generally turn out very idle and worthless. 
******** 

Long apprenticeships are altogether unnecessary. The arts, 
which are much superior to common trades, such as those of 
making clocks and watches, contain no such mystery as to 
require a long course of instruction. The first invention of such 
beautiful machines, indeed, and even that of some of the instru- 
ments employed in making them, must, no doubt, have been the 
work of deep thought and long time, and may justly be con- 
sidered as among the happiest efforts of human ingenuity. But 
when both have fairly been invented, and are well understood, 
to explain to any young man, in the completest manner, how to 
apply the instruments and how to construct the machines, can- 
not well require more than the lessons of a few weeks : perhaps 
those of a few days might be sufficient. In the common mechanic 
trades, those of a few days might certainly be sufficient. The 
dexterity of hand, indeed, even in common trades, cannot be 
acquired without much practice and experience. But a young 
man would practise with much more diligence and attention if 
from the beginning he wrought as a journeyman, being paid in 
proportion to the little work which he could execute, and 



THE ORGA^'lZATiON OF INDUSTKV 109 

paying in his turn for the materials which he might sometimes 
spoil through awkwardness and inexperience. His education 
would generally in this way be more effectual, and always less 
tedious and expensive. The master, indeed, would be a loser. 
He would lose all the wages of the apprenticeship, which he 
now saves for seven years together. In the end, perhaps, the 
apprentice himself would be a loser. In a trade so easily learnt 
he would have more competitors, and his wages, when he came 
to be a complete workman, would be much less than at present. 
The same increase of competition would reduce the profits of 
the masters as well as the wages of the workmen. The 
trades, the crafts, the mysteries, w'ould all be losers. But the 
public -would be a gainer, the work of all artificers coming in 
this way much cheaper to market. 

It is to prevent this reduction of price, and consequently of 
wages and profit, by restraining that free competition which 
would most certainly occasion it, that all corporations, and the 
greater part of corporation laws, have been established. In 
order to erect a corporation, no other authority in ancient times 
was requisite in many parts of Europe but that of the town 
corporate in which it was established. In England, indeed, a 
charter from the king was likewise necessary. But this pre- 
rosrative of the crown seems to have been reserved rather for 
extorting money from the subject than for the defence of the 
common liberty against such oppressive monopolies. Upon pay- 
ing a fine to the king, the charter seems generally to have been 
readily granted ; and when any particular class of aitificers or 
traders thought proper to act as a corporation without a charter, 
such adulterine gilds, as they were called, were not always dis- 
franchised upon that account, but obliged to fine annually to the 
king for permission to exercise their usurped privileges. The im- 
mediate inspection of all corporations, and of the bye-laws which 
they might think proper to enact for their own government, 
belonged to the town corporate in which they were established ; 
and whatever discipline was exercised over them proceeded com- 
monly, not from the king, but from that greater incorporation 
of which those subordinate ones were only parts or members. 



110 SELECTED READINGS IN ECONOMICS 

The government of towns corporate was altogether in the 
hands of traders and artificers ; and it was the manifest interest 
of every particular class of them to prevent the market from 
being overstocked, as they commonly express it, with their own 
particular species of industry ; which is in reality to keep it 
always understocked. Each class was eager to establish regu- 
lations proper for this purpose, and, provided it was allowed to 
do so, was willing to consent that every other class should do 
the same. In consequence of such regulations, indeed, each 
class was obliged to buy the goods they had occasion for from 
every other within the town, somewhat dearer than they other- 
wise might have done. But in recompense, they were enabled 
to sell their own just as much dearer, so that so far it was as 
broad as long, as they say ; and in the dealings of the different 
classes within the town with one another none of them were 
losers by these regulations. But in their dealings with the 
country they were all great gainers ; and in these latter dealings 
consists the whole trade which supports and enriches every town. 

Every town draws its whole subsistence, and all the materials 
of its industry, from the country. It pays for these chiefly in 
two ways : first, by sending back to the country a part of those 
materials wrought up and manufactured, in which case their 
price is augmented by the wages of the workmen, and the profits 
of their masters or immediate employers ; secondly, by sending 
to it a part both of the rude and manufactured produce, either 
of other countries, or of distant parts of the same country, im- 
ported into the town, in which case, too, the original price of 
those goods is augmented by the wages of the carriers or sailors, 
and by the profits of the merchants who employ them. In what 
is gained upon the first of those two branches of commerce, 
consists the advantage which the town makes by its manufac- 
tures ; in what is gained upon the second, the advantage of its 
inland and foreign trade. The wages of the workmen, and the 
profits of their different employers, make up the whole of what 
is gained upon both. Whatever regulations, therefore, tend to 
increase those wages and profits beyond what they otherwise 
would be, tend to enable the town to purchase, with a smaller 



THE ORGAXIZATIOX OF INDUSTRY 111 

quantity of its labour, the produce of a greater quantity of the 
labour of the country. They give the traders and artificers in 
the town an advantage over the landlords, farmers, and labourers 
in the country, and break down the natural equality which 
would otherwise take place in the commerce which is carried 
on between them. The whole annual produce of the labour of 
the society is annually divided between those two different sets 
of people. By means of those regulations a greater share of it 
is given to the inhabitants of the town than would otherwise 
fall to them, and a less to those of the country. 

The price which the town really pays for the provisions and 
materials annually imported into it, is the quantity of manufac- 
tures and other goods annually exported from it. The dearer 
the latter are sold, the cheaper the former are bought. The 
industry of the town becomes more, and that of the country 
less advantageous. 

Tiiat the industry which is carried on in towns is, everywhere 
in Europe, more advantageous than that which is carried on in 
the country, without entering into any very nice computations, 
we may satisfy ourselves by one very simple and obvious obser- 
vation. In every country in Europe we find, at least, a hundred 
people who have acquired great fortunes from small beginnings 
by trade and manufactures, the industry which properly belongs 
to towns, for one who has done so by that which propeily be- 
longs to the country, the raising of rude produce by the 
im})rovement and cultivation of land. Industry, therefore, must 
be better re^Varded, the wages of labour and the profits of stf)ek 
must evidently be greater in the one situation than in the other. 
But stock and labour naturally seek the most advantageous em- 
ployment. They naturally, therefore, resort as much as they can 
to the town, and desert the country. 

The inhabitants of a town, being collected into one place, can 
easily combine together. The most insignificant trades carried 
on in towns have accordingly, in some place or othei-, been in- 
corporated ; and even where they have never been iiicf)rporated, 
yet the corporation spirit, the jealousy of strangers, the aversion 
to take apprentices, or to communicate the secret of their trade 



112 SELECTED READINGS IN ECONOMICS 

generally prevail in them, and often teach them, by voluntary 
association, and agreements, to prevent that free competition 
which they cannot prohibit by bye-laws. The trades which em- 
ploy but a small number of hands, run most easily into such 
combinations. Half a dozen wool-combers, perhaps, are neces- 
sary to keep 1000 spinners and weavers at work. By combin- 
ing not to take apprentices, they engross the employment but 
reduce the whole manufacture into a sort of slavery to them- 
selves, and raise the price of their labour much above what is 
due to the nature of their work. 

The .inhabitants of the country dispersed in distant places, 
cannot easily combine together. They have not only never been 
incorporated, but the corporation spirit never has prevailed 
among them. No apprenticeship has ever been thought neces- 
sary to qualify for husbandry, the great trade of the country. 
After what are called the fine arts, and the liberal professions, 
however, there is perhaps no trade which requires so great a 
variety of knowledge and experience. The innumerable vol- 
umes which have been written upon it in all languages may 
satisfy us, that among the wisest and most learned nations, it 
has never been regarded as a matter very easily understood. 
And from all those volumes we shall in vain attempt to collect 
that knowledge of its various and complicated operations which 
is commonly possessed even by the common farmer, how con- 
temptuously soever the very contemptible authors of some of 
them may sometimes affect to speak of him. There is scarce any 
common mechanic trade, on the contrary, of which all the oper- 
ations may not be as completely and distinctly explained in a 
pamphlet of a very few pages, as it is possible for words illus- 
trated by figures to explain them. In the histor^^ of the arts 
now publishing by the French academy of sciences, several of 
them are actually explained in this manner. The direction of 
operations besides, which must be varied with every change 
of the weather as well as with many other accidents, requires 
much more judgment and discretion, than that of those which 
are always the same or very nearly the same. 



THE ORGANIZATION OF INDUSTRY 113 

The superiority whicli the industry of the towns has every- 
where in Europe over that of the country, is not altogether 
owing to corporations and corporation laws. It is suppoiled by 
many other regulations. The high duties upon foreign manu- 
factures and upon all goods imported by alien merchants, all 
tend to the same purpose. Corporation laws enable the inhab- 
itants of towns to raise their prices without fearing to be under- 
sold by the free competition of their own countrymen. Those 
other regulations secure them equally against that of foreigners. 
The enhancement of price occasioned by both is everywhere 
finally paid by the landlords, farmers, and labourers of the coun- 
try, who have seldom opposed the establishment of such monop- 
olies. They have commonly neither inclination nor fitness to 
enter into combinations ; and the clamour and sophistry of mer- 
chants and manufacturers easily persuade them that the private 
interest of a part, and of a subordinate part of the society, is the 
general interest of the whole. 

******** 

People of the same trade seldom meet together even for mer- 
riment and diversion, but the conversation ends in a conspiracy 
against the public, or on some contrivance to raise prices. It is 
impossible indeed to prevent such meetings by any law which 
either could be executed or would be consistent with liberty and 
justice. But though the law cannot hinder people of the same 
trade from sometimes assembling together, it ought to do noth- 
ing to facilitate such assemblies, much less to render them neces- 
sary. A regulation which obliges all tiiose of the same trade in 
a particular town to enter their names and places of abode in a 
public register, facilitates such assemblies. It connects indi- 
viduals who might never otherwise be known to one another, 
and gives every man of the trade a direction where to find 
every other man of it. A regulation which enables those of the 
same trade to tax themselves in order to provide for their poor, 
their sick, their widows and orphans, by giving them a common 
interest to manage, may also render such assemblies necessary. 
An incorporation not only renders them necessary, but makes 
the act of tlie majority binding upon the whole. In a free trade 



114 SELECTED READINGS IN ECONOMICS 

an effectual combination cannot be established but by the unan- 
imous consent of every single trader, and it cannot last any 
longer than every single trader continues of the same mind. 
The majority of a corporation cannot enact a bye-law with proper 
penalties, which will limit the competition more effectually, and 
more durably than any voluntary combination whatever. The 
pretence that corporations are necessary for the better govern- 
ment of the trade, is without any foundation. The real and 
effectual discipline which is exercised over a workman, is not 
that of his corporation, but that of his customers. It is the fear 
of losing their employment which restrains his frauds and 
corrects his negligence. An exclusive corporation necessarily 
weakens the force of this discipline. A particular set of work- 
men must then be employed, let them behave well or ill. It is 
upon this account, that in many large incorporated towns no 
tolerable workmen are to be found, even in some of the most 
necessary trades. If you would have your work tolerably exe- 
cuted, it must be done in the suburbs, where the workmen, 
having no exclusive privilege, have nothing but their character 
to depend upon, and you must then smuggle into the town as 
well as you can. 

It is in this manner that the policy of Europe, by restraining 
the competition in some employments to a smaller number than 
would otherwise be disposed to enter into them, occasions a 
very important inequality in the whole of the advantages and 
disadvantages of the different employments of labour and stock. 

2. Domestic Industry vs. the Factory System^ 

The 2d and 3d of Ph. and Mary is another of the acts com- 
prised within the third class.'-^ This statute, commonly called the 
Weavers Act, ^mong other regulations limits the number of 
looms which persons residing in villages may keep in one house. 

1 This account of the organization of the English woolen industry in 1806 is 
taken from the report of a parliamentary committee. See Report from the 
Committee on the Woolen Manufacture of England, July 4, 1806. 

2 The class of acts referred to were those ' ' controlling the making and 
selling of cloth." — Ed. 



THE ORGANIZATION OF INDUSTRY J15 

It is higlily valued, and its repeal strongly opposed, by another 
very respectable class of petitioners. But in order that the 
House may enter more distinctly into the principles and reason- 
ings which belong to this part of the subject, it may l)e expe- 
dient for your committee to state that there are three different 
modes of carrying on the woolen manufacture, — that of the 
master clothier of -the west of England, the factory, and the 
domestic system. 

In all the western counties as well as in the north there are 
factories, but the master clothier of the west of England buys 
his wool from the importer, if it be foreign, or in the fleece, or 
of the wool stapler, if it be of domestic growth ; after which, m 
all the different processes through which it passes, he is under 
the necessity of employing as many distinct classes of persons ; 
sometimes working in their own houses, sometimes in those 
of the master clothier, but none of them going out of their 
proper line. Each class of workmen, however, acquires great 
skill in performing its particular operation, and hence may have 
arisen the acknowledged excellence, and, till of late, superiority 
of the cloths of the west of England. It is, however, a remark- 
able fact, of which your committee has been assured by one of 
its own members, that previously to the introduction of machin- 
ery it was very connuon, and it is said sometimes to happen at 
this day, for the north countryman to come into the west of 
England, and in the clothing districts of that part of the king- 
dom, to purchase his wool, which he carries home ; wheie, having 
worked it up into cloth, he brings it back again and sells it in 
its native district. This is supposed to arise from the northern 
clothier being at liberty to work himself, and employ his own 
family and others, in any way which his interest or convenience 
may suggest. 

In the factory system the master manufacturers, who some- 
times possess a very great capital, employ in one or more build- 
ings or factories, under their own or their superintendent's 
inspection, a number of workmen, more or fewer according to 
the extent of their trade. This system, it is obvious, admits 
in practice of local variations. But both in the system of the 



116 SELECTED HEADINGS IN ECONOMICS 

west-of-England clothier and in the factory system the work, 
generally speaking, is done by persons who have no property in 
the goods they manufacture, for in this consists the essential 
distinction between the two former systems and the domestic. 

In the last-mentioned or domestic system, which is that of 
Yorkshire, the manufacture is conducted by a multitude of 
master manufacturers generallj^ possessing . a very small and 
scarcely ever any great extent of capital. They buy the wool 
of the dealer; and, in their own houses, assisted by their wives 
and children, and from two or three to six or seven journey- 
men, they dye it (when dyeing is necessary) and through all the 
different stages work it up into undressed cloth.^ 

Various processes, however, the chief of which were formerly 
done by hand under the manufacturer's own roof, are now 

1 The following description of the cloth trade of Halifax, a town in the West 
Riding of Yorkshire, was written by Daniel Defoe early in the eighteenth cen- 
tury (Tour of Great Britain, III, Letter III) : "From Blackstone Edge to Hali- 
fax is eight Miles, and all the Way, except from Sorbij to Halifax, is thus up 
Hill and down ; so that, I suppose, we mounted up to the Clouds, and descended 
to the Water-level, about eight times in that little Part of the Journey. 

But now I must observe to you, that after we had passed the second Hill, 
and come down into the Valley again, and so still the nearer we came to Hali- 
fax, we found the Houses thicker, and the Villages greater, in every Bottom ; 
and not only so, but the Sides of the Hills, which were very steep every Way, 
were spread with Houses ; for the Land being divided into small Inclosures, 
from two Acres to six or seven each, seldom more, every three or four Pieces 
of Land had an House belonging to them. 

In short, after we had mounted the third Hill, we found the Country one 
continued Village, tho' every way mountainous, hardly an House standing out 
of a Speaking-distance from another ; and as the Day cleared up, we could see 
at every House a Tenter, and on almost every Tenter a Piece of Cloth, Kersie, 
or Shalloon, which are the three Articles of this Country's Labour. 

In the Course of .our Road among the Houses, we found at every one of them 
a little Rill or Gutter of running Water ; if the House was above the Road, it 
came from it, and crossed the Way to run to another ; if the House was below 
us, it crossed us from some other distant House above it ; and at every consid- 
erable House was a Manufactory, which not being able to be carried on without 
Water, these little Streams were so parted and guided by Gutters or Pipes, that 
not one of the Houses wanted its necessary Appendage of a Rivulet. 

Again, as the Dying-houses, Scouring-shops, and Places where they use this 
Water, emit it tinged with the Drugs of the Dying-vat, and with the Oil, the 
Soap, the Tallow, and other Ingredients used by the Clothiers in Dressing and 
Scouring, &c. the Lands thro' which it passes, which otherwise would be ex- 
ceeding barren, are enriched by it to a Degree beyond Imagination. 



THE UKGAXIZATION OF INDUSTin 117 

performed by machinery in public mills, as they are called, which 
work for hire. There ai'e several such mills near every manu- 
facturing village, so that the manufacturer, with little incon- 
venience or loss of time, carries thither his goods and fetches 
them back again when the process is completed. When it has 
attained to the state of undressed cloth he carries it on the 
market day to a public hall or market, where the merchants 
rep.air to purchase. 

Several thousands of these small master manufacturers attend 
the market of Leeds, where there are three halls for the expo- 
sure and sale of their cloths ; and there are other similar halls, 
where the same system of selling in public market prevails, at 
Bradford, Halifax, and Huddersfield. The halls consist of long 
walks or galleries, throughout the whole length of which the 

Then, as every Clothier must necessarily keep one Horse, at least, to fetch 
home his Wool and his Provisions from the Market, to carry his Yarn to the 
Spinners, his Manufacture to the Fulling-mill, and, when finished, to the 
Market to be sold, and the like ; so every one generally keeps a Cow or two for 
his Family. By this means, the small Pieces of inclosed Land about each House 
are occupied ; and by being thus fed, are still farther improved from the Dung 
of the Cattle. As for Corn, they scarce sow enough to feed their Cocks and Hens. 

Such, it seems, has been the Huiuity of Nature to this Country, that two 
Things essential to Life, and more particularly to the Business followed here, 
are found in it, and in such a Situation as is not to be met with in any part of 
England, if in the World beside : I mean. Coals and running Water on the 
Tops of the highest Hills. I doubt not but there are both Springs and Coals 
lower in these Hills ; but were they to fetch them thence, 'tis probable the Pits 
would be too full of Water : 'tis easy, however, to fetch them from the upper 
Pits, the Horses going light up, and coming down loaden. This Place then 
seems to have been designed by Providence for the very Purposes to which it is 
now allotted, for carrying on a Manufacture, which can no-where be so easily 
supplied with the Conveniences necessary for it. Nor is the Industry of the 
People watting to second these Advantages. Tho' we met few People without 
Doors, yet within we saw the Houses full of lusty Fellows, some at the Dye-vat, 
some at the Loom, others dressing the Cloths ; the Women and Children card- 
ing, or spinning ; all employed from the youngest to the oldest ; scarce anything 
above four Years old, but its Hands were sufficient for its own Support. Not a 
Beggar to be seen, not an idle Per.son, except here and there in an Almshouse, 
built for those that are antient and past working. The people in general live 
long ; they enjoy a good Air ; and under such Circumstances hard Labour is 
naturally attended with the Blessing of Health, if not Riches. 

From this Account, you'll easily imagine, that some of these remote Parts 
of the North are the most populous Places of Great Britain, London and its 
Neighbourhood excepted." 



118 SELECTED READINGS IN ECONOMICS 

master manufacturers stand in a double row, each behind his 
own little division or stand, as it is termed, on which his goods 
are exposed to sale. In the interval between these rows the 
merchants pass along and make their purchases. At the end of 
an hour, on the ringing of a bell, the market closes, and such 
cloths as have been purchased are carried home to the mer- 
chants' houses ; such goods as remain unsold continuing in 
the halls till they find a purchaser at some ensuing market. 
It should, however, be remarked that a practice has alsci obtained 
of late years, of merchants giving out samples to some manu- 
facturer whom they approve, which goods are brought to the 
merchant directly, without ever coming into the halls. These, 
however, no less than the others, are manufactured by him in 
his own family. The greater merchants have their working 
room, or, as it is termed, their shop, in which their workmen, 
or, as they are termed, croppers, all work together. The goods 
which, as it has been already stated, are bought in the undressed 
state, here undergo various processes, till, being completely 
finished, they are sent away for the use of the consumer, either 
in the home or the foreign market, the merchants sending them 
abroad directly without the intervention of any other factor. 
Sometimes again the goods are dressed at a stated rate by 
dressers, who take them in for that purpose. 

The greater part of the domestic clothiers live in villages 
and detached houses, covering the whole face of a district of 
from twenty to thirty miles in length, and from twelve to fifteen 
in breadth. Coal abounds throughout the whole of it, and the 
great proportion of the manufacturers occupy a little land, — 
from three to twelve or fifteen acres each. They often likewise 
keep a horse to carry their cloth to the fulling mill and the 
market. 

Though the system which has been just described be that 
which has been generally established in the West Riding of 
Yorkshire, yet there have long been a few factories in the 
neighborhood of Halifax and Huddersfield ; and four or five 
more, one however of which has been since discontinued, have 
been set on foot not many years ago in the neighborhood of 



THE ORGANIZATION OF INDUSTRY 119 

Leeds. These have for some time been objects of great jealousy 
to the domestic clothiers. The most serious apprehensions have 
been stated, by witnesses who have given their evidence before 
your committee in behalf of the domestic manufacturers, lest 
the factory system should gradually root out the domestic, and 
lest the independent little master manufacturer, who works on 
his own account, should sink into a journeyman working for hire. 
It is for the purpose of countei'acting this supposed tendency of 
the factory system to increase, that a numerous class of petition- 
ers wish, instead of repealing, to amend and enforce the act of 
Philip and Mary for restricting the number of looms to be worked 
in any one tenement; and with a similar view they wish to retain 
in force the 5th of Elizabeth, which enacts the system of ap- 
prenticeships. On this latter head your committee will have 
occasion to say more hereafter, but it seemed right just to 
notice the circumstance in this place. 

Your committee cannot wonder that the domestic clothiers 
of Yorkshire are warmly attached to their accustomed mode of 
carrying on the manufactui'e : It is not merely that they are 
accustomed to it, — it obviousl}' possesses many eminent advan- 
tages seldom found in a great manufacture. 

It is one peculiar recommendation of the domestic system of 
manufacture that, as it has been expressly stated to your com- 
mittee, a young man of good character can always obtain credit 
for as much wool as will enable him to set up as a little master 
manufacturer, and tiie public mills, which are now established 
in all parts of the clothing district, and which work for hire 
at an easy rate, enable him to command the use of very expen- 
sive and complicated machines, the construction and necessary 
repairs of which would require a considerable capital. Thus 
instances not unfrequently occur wherein men rise from low 
beginnings, if not to excessive wealth, yet to a situation of 
comfort and independence. 

It is another advantage of the domestic system of Manufac- 
ture, and an advantage which is obviously not confined to the 
individuals who are engaged in it, but which, as well as otlier 
parts of this system, extends its benefits to the landholder, that 



120 SELECTED READINGS IN ECONOMICS 

any sudden stoppage of a foreign market, any failure of a great 
house, or any other of those adverse shocks to which our foreign 
trade especially is liable, in its present extended state, has not 
the effect of throwing a great number of workmen out of employ, 
as it often does, when the stroke falls on the capital of a single 
individual. In the domestic system the loss is spread over a 
large superficies ; it affects the whole body of the manufactur- 
ers ; and though each little master be a sufferer, yet few if any 
feel the blow so severely as to be altogether ruined. Moreover 
it appears in evidence that, in such cases as these, they seldom 
turn off any of their standing set of journeymen, but keep them 
at work in hopes oi better times. 

On the whole, your committee feel no little satisfaction in 
bearing their testimony to the merits of the domestic system of 
manufacture ; to the facilities it affords to men of steadiness 
and industry to establish themselves as little master manufac- 
turers, and maintain their families in comfort by their own 
industrj^ and frugality ; and to the encouragement which it thus 
holds out to domestic habits and virtues. Neither can they 
omit to notice its favorable tendencies on the health and morals 
of a large and important class of the community. 

But while your committee thus freely recognize the merits 
and value of the domestic system, they at the same timie feel it 
their duty to declare it as their decided opinion that the appre- 
hensions entertained of its being rooted out by the factory system 
are, at present at least, wholly without foundation. 

For, happily, the merchant no less than the domestic manu- 
facturer finds his interest and convenience promoted by the 
domestic system. While it continues he is able to carry on his 
trade with far less capital than if he were to be the manufacturer 
of his own cloth. Large sums must then be irrecoverably 
invested in extensive buildings and costly machinery ; and, 
which perhaps is a consideration of still more force, he must 
submit to the constant trouble and solicitude of watching over 
a numerous body of workmen. He might then often incur the 
expense of manufacturing articles which, from some disappoint- 
ment in the market, must either be kept on hand or be sold at 



THE ORGANIZATION OF INDUSTRY' 121 

a loss. As it is, he can agree with his customer, at hoiufe or 
abroad, for any quantity of goods ; and, whether on a long- 
expected or a sudden demand, he can repair at once to the 
market, and most probably purchase to the precise extent of his 
known wants ; or, if the market happen not to furnish what he 
wishes to purchase, he can give out his sample and have his 
order executed immediately. 

While these and various other considerations, which might be 
stated, interest the merchant as well as the manufacturer in 
the continuance of the domestic system ; and when it is re- 
membered that this mode of conducting the trade greatly multi- 
plies the merchants, by enabling men to carry on business with 
a comparatively small capital, your committee cannot participate 
in the apprehensions which are entertained by the domestic 
clothiers. In fact, there are many merchants of very large 
capitals and of the highest credit, who for several generations 
have gone on purchasing in the halls, and some of this very 
description of persons state to your committee that they had 
not only had no thoughts of setting up factories themselves, 
but that they believed many of those who had established them 
were not greatly attached to that system, but only persisted 
in it because their buildings and machinery must otherwise lie 
a dead weight upon their hands. lender these circumstances 
the lively fear of tlie decline of the domestic and the general 
establishment of the factory system may reasonably excite 
surprise. It may have been in part occasioned by the decrease 
of the master manufacturers in the immediate neighborhood of 
the large towns, especially in two or three populous hamlets 
adjoining to Leeds, whence they have migrated to a greater 
distance in the country, where they might enjoy a little land 
and other conveniences and comforts. It may have strengthened 
the impression that, as your committee has already stated, 
three or four factories have, within no very long period of time, 
been established in Leeds or its vicinity. 

But your committee are happy in being able to adduce one 
irrefragable fact in corroboration of the sentiments they have 
already expressed on this question : this is, that the quantity 



122 SELECTED EEADINGS IN ECONOMICS 

of cloth manufactured by the domestic system has increased 
immensely of late years, not only in itself but as compared with 
the quantity made in factories. 

Several factories, it has been observed, had long been estab- 
lished near Halifax and Huddersfield, but the principal progress 
of the factory system, and that which chiefly created the alarm, 
is stated to have been, within about the last fourteen years, in 
the town and neighborhood of Leeds. Your committee suc- 
ceeded in their endeavors to discover the quantity of cloth 
annually manufactured in all these factories, and it was found not 
to exceed eight thousand pieces. According to the provisions of 
the acts commonly called the Stamping Acts, — 11 George II and 
5 and 6 George III, returns are made every Easter to the justices 
at Pontefract Sessions, of the quantity of cloth which has been 
made in the preceding year, the account being kept at the 
fulling mills by officers appointed for that purpose. These 
returns your committee carefully examined for the last fourteen 
years, and find that in the year 1792, being by far the greatest 
year of export then known, there were manufactured 190,332 
pieces of broad and 150,666 pieces of narrow cloth; yet the 
quantity of cloth manufactured in 1805 was 300,237 pieces of 
broad and 165,847 pieces of narrow cloth, giving an increase, 
in favor of 1805, of 109,905 pieces broad and 15,181 pieces 
narrow ; from which increase, deducting the cloth manufactured 
in factories, there remains an increase of about 100,000 broad 
and 15,181 narrow pieces, to be placed to the account of the 
domestic system. The comparatively small quantity of cloth 
manufactured by the factories will excite less surprise when it is 
considered that they are better adapted to the manufacturing of 
fancy goods, of which immense quantities and great varieties have 
been invented and sold, chiefly for a foreign market, of late years. 

Your committee trust they will not be accused of prolixity 
for having gone into some length in discussing this important 
question, on which, in that confidence, they beg leave to sub- 
mit some few farther remarks. On the whole, jonr committee 
do not wonder that the domestic clothiers are warmly attached 
to their peculiar system. This is a predilection in which the 



THE ORGAXIZATIOX OF TXDUSTKY 120 

committee participate, but at the same time they must declare 
that they see at present no solid ground for the alarm which has 
gone forth, lest the halls should be deserted and the generality 
of merchants should set up factories. Your committee, however, 
must not withhold the declaration that if any such disposition 
had been perceived, it must have been their less pleasing duty 
to state that it would by no means have followed that it was a 
disposition to be counteracted by positive law. 

The right of every man to employ the capital he inherits, or 
has acquired, according to his own discretion, without molesta- 
tion or obstruction, so long as he does not infringe on the rights 
or property of others, is one of those privileges which the free 
and happy constitution of this country has long accustomed 
every Briton to consider as his birthright ; and it cannot there- 
fore be necessary for your committee to enlarge on its value or 
to illustrate its effects. These would be indubitably confirmed 
by an appeal to our own commercial prosperity, no less than by 
the history of other trading nations, in which it has been ever 
found that commerce and manufactures have flourished in free 
and declined in despotic countries. But without recurring to 
principles, of which, even under different circumstances, your 
committee would be compelled to admit the force, your committee 
have the satisfaction of seeing tliat the apprehensions entertained 
of factories are not only vicious in principle, but that they are 
practically erroneous, — to such a degree, that even the very 
opposite dispositions might be reasonably entertained ; nor 
would it be difficult to prove that the factories, to a certain 
extent at least, and in the present day, seem absolutely necessary 
to the well-being of the domestic system, supplying those very 
particulars wherein the domestic system nuist be acknowledged 
to be inherently defective ; for it is obvious that the little 
master manufacturers cannot afford, like the man who possesses 
considerable capital, to try the experiments which are requi- 
site, and incur the risks, and even losses,- which almost always 
occur in inventing and perfecting new articles of manufacture, 
or in carrying to a state of greater perfection articles already 
established. He cannot learn by personal inspection the wants 



124 SELECTED EEADINGS IN ECONOMICS 

and habits, the arts, manufactures, and improvements of foreign 
countries ; diligence, economy, and prudence are the requisites 
of his character, not invention, taste, and enterprise ; nor would 
he be warranted in hazarding the loss of any part of his small 
capital : he walks in a sure road as long as he treads in the 
beaten track ; but he must not deviate into the paths of specula- 
tion. The owner of a factory, on the contrary, being commonly 
possessed of a large capital, and having all his workmen em- 
ployed under his own immediate superintendence, may make 
experiments, hazard speculation, invent shorter or better modes 
of performing old processes, may introduce new articles, and 
improve and perfect old ones, thus giving the range to his taste 
and fancy, and, thereby alone, enabling our manufacturers to 
stand the competition with their commercial rivals in other 
countries. Meanwhile, as is well worthy of remark (and experi- 
ence abundantly warrants the assertion), many of these new 
fabrics and inventions, when their success is once established, 
become general among the whole body of manufacturers ; the 
domestic manufacturers themselves thus benefiting, in the end, 
from those very factories which had been at first the objects of 
their jealousy. The history of almost all our other manufactures, 
in which great improvements have been made of late years, in 
some cases at an immense expense, and after numbers of unsuc- 
cessful experiments, strikingly illustrates and enforces the above 
remarks. It is besides an acknowledged fact that the owners of 
factories are often among the most extensive purchasers at the 
halls, where they buy from the domestic clothier the established 
articles of manufacture, or are able at once to answer a great 
and sudden order ; while at home, and under their own superin- 
tendence, they make their fancy goods, and any articles of a 
newer, more costly, or more delicate quality, to which they are 
enabled by the domestic system to apply a much larger propor- 
tion of their capital. Thus the two systems, instead of rivaling, 
are mutual aids to each other, each supplying the other's de- 
fects and promoting the other's prosperity. 

The committee feel it to be their duty to recommend the repeal 
of the 2d & 3d of Philip and Mary, or The Weavers Act. 



THE ORGAXIZATION OF INDUSTRY 125 

3. The Great Inventions' 

Wool was the most ancient and most important of English 
manufactures. Custom seemed to point to the permanent supe- 
riority of tlie woolen trade. The Chancellor of England sat on 
a sack of wool, and when men spoke of the staple trade they 
always referred to the trade in wool. For centuries British 
sovereigns and British statesmen had, after their own fashion, 
and according to their own ideas, actively promoted this partic- 
ular industry. Edward III had induced Flemish weavers to 
settle in this country. The Restoration Parliament prohibited 
the exportation of British wool, and had ordered that the very 
dead should be interred in woolen shrouds. The manufacturers 
s[)read over the entire kingdom. Wherever there was a running 
stream to turn their mill there was at any rate the possibility 
of a woolen factory. Norwich, with its contiguous village of 
Worsted, was tlie chief seat of the trade ; but York and Brad- 
ford, Worcestershire and Gloucestershire, Manchester and Ken- 
dal, were largely dependent on it. 

The steps which Parliament took to promote this particular 
industry were not always very wise ; in one point they were 
not very just. Ireland, in many respects, could have competed 
on advantageous terms with the woolen manufacturers of Eng- 
land. English jealousy prohibited, in consequence, the importa- 
tion of Irisli manufactured woolen goods. The result hardly 
answered the sanguine anticipations of the selfish senators who 
had secured it. The Irish, instead of sending their fleeces to be 
worked up in Great Britain, smuggled them, in return for con- 
traband spirits, to F'rance. England failed to obtain any large 
addition to her raw material, and Ireland was driven into closer 
communication witli the hereditary foe of England. The loss of 
Irish fleeces was the more serious from another cause. The 
home supply of wool had originally been abundant and good ; 
but its jiroduction at the commencement of the century was 
not increasing as i-apidly as the demand for it; the (juality of 
home-grown wool was rapidly deteriorating. The same sheep 

1 From Spencer Walpole's History of England from 1815, I, 52-70. 



126 SELECTED READINGS IN ECONOMICS 

do not produce both wool and mutton in the greatest perfection. 
Every improvement in their meat is effected at the cost of their 
fleece. English mutton was better than it had ever been, but 
English manufacturers were compelled to mix foreign with native 
wool. Had trade been free, this result would have been of little 
moment. The English could have easily obtained an ample 
supply of raw material from the hills of Spain and other coun- 
tries ; but at the very time at which foreign wool became indis- 
pensable the necessities of the country, or the ignorance of her 
financiers, led to the imposition of a heavy import duty on wool. 
Addington, in 1802, levied a duty upon it of 5s. 3d. the cwt. ; 
Vansittart, in 1813, raised the tax to 6s. 8d. The folly of the 
protectionists had done much to ruin the wool trade, but the 
evil already done was small in comparison with that in store. 

Notwithstanding, however, the restrictions on the wool trade, 
the woolen industry was of great importance. In 1800 Law, 
as counsel to the manufacturers, declared, in an address to the 
House of Lords, that 600,000 packs of wool, worth X 6,6 00,000, 
were produced annually in England and Wales, and that 1,500,- 
000 persons were employed in the manufacture. But these 
figures, as McCulloch has shown, are undoubtedly great exag- 
gerations. Rather more than 400,000 packs of wool were 
available for manufacturing purposes at the commencement 
of the century ; more than nine tenths of these were produced 
at home, and some 350,000 or 400,000 persons were probably 
employed in the trade. The great woolen industry still deserved 
the name of "our staple trade"; but it did not merit the exag- 
gerated descriptions which persons, who should have known 
better, applied to it. 

If the staple trade of the country had originally been in 
woolen goods at the commencement of the present century, 
cotton was rapidl}^ gaining upon wool. Cotton had been used 
in the extreme East and in the extreme West from the earliest 
periods of which we have any records. The Spaniards, on their 
discovery of America, found the Mexicans clothed in cotton. 
" There are trees," Herodotus had written nearly two thousand 
years before, "which grow wild there [in India], the fruit whereof 



THE ORGANIZATION OF INDISTRV 127 

is a wool exceeding in beauty and goodness that of sheep. The 
natives make their clothes of this tree wool." But though the 
use of cotton had been known from the earliest ages, both in 
India and America, no cotton goods were imported into Europe; 
and in the ancient world both rich and poor weit clothed in 
silk, linen, and wool. The industrious Moors introduced cotton 
into Spain. ]\Iany centuries afterwards cotton was imported 
into Italy, Saxony, and the Low Countries. Isolated from the 
rest of Europe, with little wealth, little industry, and no roads, 
rent by civil commotions, the English were the last people in 
Europe to introduce the manufacture of cotton goods into their 
own homes. 

Towards the close of the sixteenth century, indeed, cotton 
goods were occasionally mentioned in the Statute Book, and 
the manufacture of the cottons of Manchester was regulated by 
acts passed in the reigns of Henry VIII, Edward VI, and 
Elizabeth. But there seem to be good reasons for concluding 
that Manchester cottons, in the time of the Tudors, were woolen 
goods, and did not consist of cotton at all. More than a cen- 
turv elapsed before any considerable trade in cotton attracted 
the attention of the legislature. The Avoolen manufacturers 
complained that people were dressing their children in printed 
cottons, and Parliament was actually persuaded to prohibit 
the introduction of Indian printed calicoes. Even an Act of 
Parliament, however, was unable to extinguish the growing 
taste for Indian cottons. The ladies, according to the complaint 
of an old writer, expected " to do what they please, to say what 
they please, and wear what they please." The taste for cotton 
led to the introduction of calico printing in London ; Parlia- 
ment, in order to encourage the new trade, was induced to sanc- 
tion the importation of plain cotton cloths from India under a 
duty. The demand which was thus created for calicoes prol> 
al)ly promoted their manufacture at home; and Manchester, 
Bolton, Frome, and other places gradually acquired fresh vital- 
ity from the creation of a new industry. 

Many years, however, passed before the trade attained any- 
thing but the slenderest proportions. In the year 1697 only 



128 SELECTED READINGS IN ECONOMICS 

1,976,359 pounds of cotton wool were imported into the United 
Kingdom. In the yearl751, only 2,976,610 pounds were imported. 
The official value of cotton goods exported amounted in the 
former year to only ,£5915 ; in the latter year to only £45,986. 
At the present time Britain annually purchases about 1,500,- 
000,000 pounds of cotton wool. She annually disposes of cotton 
goods worth X60,000,000. The import trade is five hundred 
times as large as it was in 1751 ; the value of the exports has 
been increased thirteen hundred fold. The world has never 
seen, in any similar period, so prodigious a growth of manu- 
facturing industry. But the trade has not merely grown from 
an infant into a giant, — its conditions have been concurrently 
revolutionized. Up to the middle of the last century cotton 
goods were really never made at all. The so-called cotton manu- 
factures were a combination of wool or linen and cotton. No 
Englishman had been able to produce a cotton thread strong 
enough for the warp, and even the cotton manufacturers them- 
selves appear to have despaired of doing so. They induced Par- 
liament in 1736 to repeal the prohibition, which still encumbered 
the Statute Book, against wearing printed calicoes ; but the 
repeal was granted on the curious condition " that the warp 
thereof be entirely linen yarn." Parliament no doubt intended 
by this condition to check the importation of Indian goods with- 
out interfering with the home manufacturers. -The superior 
skill of the Indian manufacturers enabled them to use cotton 
for a warp, while clumsy workmanship made the use of cotton 
as a warp unattainable at home. 

In the middle of the eighteenth century, then, a piece of cot- 
ton cloth, in the true sense of the term, had never been made in 
England. The so-called cotton goods were all made in the cot- 
tages of the weavers. The yarn was carded by hand ; it was 
spun by hand ; it was worked into cloth by a hand loom. The 
weaver was usually the head of the' family ; his wife and un- 
married daughters spun the yarn for him. Spinning was the 
ordinary occupation of every girl, and the distaff was, for count- 
less centuries, the ordinary occupation of every woman. The 
occupation was so universal that the distaff was occasionally 



THE ORGANIZATION OF iXTH.STKV 12') 

used as a synonym for " woman." " Le royaume de France ne 
tombe point en quenouille''' ; 

See my royal master murdered, 
His crown usurped, a distaff in the throne. 

To this day ever}^ unmarried girl is commonly described as a 
spinster. 

The operation of weaving was, however, much more rapid than 
that of spinning. The weaver consumed more weft than his own 
family could supply him with ; and the weavers generally expe- 
rienced the greatest difficulty in obtaining sufficient yarn. About 
the middle of the eighteenth century the ingenuity of two per- 
sons, a father and a son, made this difference more apparent. 
The shuttle had originally been thrown by the hand from one 
end of the loom to the other. John Kay, a native of Bury, by 
his invention of the fly shuttle, saved the weaver from this 
labor. The lathe, in which the shuttle runs, was lengthened at 
both ends ; two strings were attached to its opposite ends ; the 
strings were held by a peg in the weaver's hands, and, by pluck- 
ing the peg, the weaver was enabled to give the necessary im- 
pulse to the shuttle. Robert Kay, John Kay's son, added the 
drop box, by means of which the weaver was able " to use any 
one of the three shuttles, each containing a different colored 
weft, without the trouble of taking them from and replacing 
them in the lathe." By means of these inventions the produc- 
tive power of each weaver was doubled. Each weaver Avas 
easily able to perform tlie amount of work which had previously 
required two men to do, and the spinsters found themselves 
more hopelessly distanced than ever in their efforts to supply 
the weavers with weft. 

The preparation of weft was entirely accomplished by manual 
labor, and the process was very complicated. Carding and rov- 
ing were both slowly performed with the aid of the clumsy 
implements which had originally been invented for the purpose. 
" Carding is the process to which the cotton is subjected after 
it has been opened and cleaned, in order tliat the fil)ers of the 
wool may be disentangled, straightened, and laid parallel with 



130 SELECTED EEADINGS IN ECONOMICS 

each other, so as to admit of being spun. This was formerly 
effected by instruments called hand cards, which were brushes 
made of short pieces of wire instead of bristles, the wires being 
stuck into a sheet of leather, at a certain angle, and the leather 
fastened on a fiat piece of wood about twelve inches long and 
five wide, with a handle. The cotton being spread upon one of 
the cards, it was repeatedly combed with another till all the 
fibers were laid straight, when it was stripped off the card in a 
fleecy roll ready for the rover. In ' roving ' the spinner took the 
short fleecy rolls in which the cotton was stripped off the hand 
cards, applied them successively to the spindle, and whilst with 
one hand she turned the wheel and thus made the spindle re- 
volve, with the other she drew out the cardings, which, receiv- 
ing a slight twist from the spindle, were made into thick threads 
called rovings, and wound upon the spindle so as to form cops." 
In spinning, " the roving was spun into yarn ; the operation 
was similar, but the thread was drawn out much finer and 
received much more twist. It will be seen that this instrument 
only admitted of one thread being spun at a time by one pair 
of hands, and the slowness of the operation and consequent ex- 
pensiveness of the yarn formed a great obstacle to the establish- 
ment of a new manufacture." 

The trade was in this humble and primitive state when a 
series of extraordinary and unparalleled inventions revolution- 
ized the conditions on which cotton had been hitherto prepared. 
A little more than a century ago John Hargreaves, a poor 
weaver in the neighborhood of Blackburn, was returning home 
from a long walk, in which he had been purchasing a further 
supply of yarn for his loom. As he entered his cottage his wife, 
Jenny, acqidentally upset the spindle which she was using. Har- 
greaves noticed that the spindles, which were now thrown into 
an upright position, continued to revolve, and that the thread 
was still spinning in his wife's hand. The idea immediately 
, occurred to him that it would be possible to connect a consider- 
able number of upright spindles with one wheel, and thus mul- 
tiply the productive power of each spinster. " He contrived a 
frame in one part of which he placed eight rovings in a row, 



THE OKGAXIZATIOX OF iXDl STKV 131 

and in another part a row of eight spindles. The rovings, when 
extended to the spindles, passed between two horizontal bars of 
wood, forming a clasp which opened and shut somewhat like a 
parallel ruler. Wlien pressed together this clasp held the 
threads fast ; a certain portion of roving being extended from 
the spindles to the wooden clasp, the clasp was closed and was 
then drawn along the liorizontal frame to a considerable distance 
from the spindles, by which the threads were lengthened out 
and reduced to the proper tenuity ; this was done with the 
spinner's left hand, and his right hand at the same time turned 
a wheel which caused the spindles to revolve rapidly, and thus 
the roving was spun into yarn. By returning the clasp to its 
first situation and letting down a piercer wire, the yarn was 
wound upon the spindle." 

Hargreaves succeeded in keeping his admirable invention 
secret for a time, but the powers of his machine soon became 
known. His ignorant neighbors hastily concluded that a machine 
which enabled one spinster to do the work of eight would throw 
multitudes of persons out of employment. A mob broke into 
his house and destroyed his machine. Hargreaves himself had 
to retire to Nottingham, where, with the friendly assistance of 
another person, he was able to take out a patent for the spinning 
jenny, as the machine, in compliment to his industrious wife, 
was called. 

The invention of the spinning jenny gave a new impulse to 
the cotton manufacture. Hut the invention of the spinning 
jenny, if it had been accompanied by no other improvements, 
would not have allowed any purely cotton goods to be manu- 
factured in England. The yarn spun by the jenny, like that 
which had previously been spun by hand, was neither fine 
enough nor hard enough to l)e employed as warp, and linen or 
woolen threads had consequently to be used for this purpose. 
In the very year, however, in which Hargreaves moved from 
Blackburn to Nottingham, Richard Arkwright took out a patent 
for his still more celebrated machine. It is alleged that John 
Wyatt, of Birmingham, thirty years before the date of Ark- 
wright's patent, had elaborated a machine for spinning by rollei-s. 



132 SELECTED READINGS IK ECONOMICS 

But in a work of this description it is impossible to analyze the 
conflicting claims of rival inventors to the credit of discovering 
particular machinery ; and the historian can do no more than 
record the struggles of those whose names are associated with 
the improvements which he is noticing. Richard Arkwright, 
like John Hargreaves, had a humble origin. Hargreaves began 
life as a poor weaver ; Arkwright, as a barber s assistant. 
Hargreaves had a fitting partner in his industrious wife Jenny ; 
Mrs. Arkwright is said to have destroyed the models which her 
husband had made. But Arkwright was not deterred from his 
pursuit by the poverty of his circumstances or the conduct of 
his wife. " After many years' intense and painful application," 
he invented his memorable machine for spinning by rollers, and 
laid the foundations of the gigantic industry which has done 
more than any other trade to concentrate in this country the 
wealth of the world. The principle of Arkwright's great inven- 
tion is very simple. He passed the thread over two pairs of 
rollers, one of which was made to revolve much more rapidly 
than the other. The thread, after passing over the pair revolving 
slowly, was drawn into the requisite tenuity by the rollers revolv- 
ing at a higher rapidity. By this simple but memorable invention 
Arkwright succeeded in producing thread capable of employment 
as Avarp. From the circumstance that the mill at which his 
machinery was first erected was driven by water power, the 
machine received the somewhat inappropriate name of the water 
frame ; the thread spun by it was usually called the water twist. 
The invention of the fly shuttle by John Kay had enabled the 
weavers to consume more cotton than the spinsters had been 
able to provide ; the invention of the spinning jenny and the 
water frame would have been useless if the old system of hand 
carding had not been superseded by a more ei^cient and more 
rapid process. Just as Arkwright applied rotatory motion to 
spinning, so Lewis Paul introduced revolving cylinders for 
carding cotton. Paul's machine consisted of " ia horizontal 
cylinder, covered in its whole circumference with parallel rows 
of cards with intervening spaces, and turned by a handle. Under 
the cylinder was a concave frame lined internally with cards 



THE OKGANIZATIO^ OF INDUSTRY 133 

exactly fitting the lower half of the cylinder, so that when the 
handle was turned the cards of the cylinder and of the concave 
frame worked against each other and carded the wool." " The 
cardings were of course only of the length of the cylinder, but 
an ingenious apparatus was attached for making them into a 
perpetual carding. Each length was placed on a flat, broad riband, 
which was extended between two short cylinders, and which 
wound upon one cylinder as it unwound from the other." 

This extraordinary series of inventions placed an almost 
unlimited supply of yarn at the disposal of the weaver. But 
the machinery, which had thus been introduced, was still 
incapable of providing yarn fit for the finer qualities of cotton 
cloth. " The water frame spun twist for warps, but it could 
not be advantageously used for the finer qualities, as thread of 
great tenuity has not strength to bear the pull of the rollers 
when winding itself on the bobbin." This defect, however, was 
removed by the ingenuity of Samuel Crompton, a young weaver 
residing near Bolton. Crompton succeeded in combining in one 
machine the various excellences of " Arkwright's water frame 
and Hargreaves's jenn}-." Like the former, his machine, which 
from its nature is happily called the njule, "has. a system of 
rollers to reduce the roving ; and, like the latter, it has spindles 
without bobbins to give the twist, and the thread is stretched 
and spun at the same time by the spindles after the rollers have 
ceased to give out the rove. The distinguishing feature of the 
mule is that the spindles, instead of being stationary, as in both 
the other machines, are placed on a movable carriage, which is 
wheeled out to the distance of fifty-four or fifty-six inches from 
the roller beam, in order to stretch and twist the thread, and 
wheeled in again to wind it on the spindles. In the jenny, the 
clasp which held the rovings was drawn back by the hand from 
the spindles ; in the mule, on the contrary, the spindles recede 
from the clasp, or from the roller beam, whigh acts as a clasp. 
The rollers of the mule draw out the roving much less than 
those of the water frame, and they act like the clasp of the 
jenny by stopping and holding fiist the rove after a certain 
quantity has been given out, whilst the spindles continue to 



134 SELECTED READINGS IN ECONOMICS 

recede for a short distance farther, so that the draught of the 
thread is in part made by the receding of the spindles. By 
this arrangement, comprising the advantages both of the roller 
and the spindles, the thread is stretched more gently and 
equably, and a much finer quality of yarn can therefore be 
produced." 

The effects of Crompton's great invention may be stated epi- 
gram matically. Before Crompton's time it was thought impos- 
sible to spin eighty hanks to the pound. The mule has spun 
three hundred and fifty hanks to the pound ! The natives of 
India could spin a pound of cotton into a thread one hundred and 
nineteen miles long. The English succeeded in spinning the 
same thread to a length of one hundred and sixty miles. Yarn 
of the finest quality was at once at the disposal of the weaver, 
and an opportunity was afforded for the production of an indefi- 
nite quantity of cotton yarn. But the great inventions, which 
have been thus enumerated, would not of themselves have been 
sufficient to establish the cotton manufacture on its present 
basis. The ingenuity of Hargreaves, Arkwright, and Crompton 
had been exercised to provide the weaver with yarn. Their inven- 
tions had provided him with more yarn than he could by any 
possibility use. The spinster had beaten the weaver, just as the 
weaver had previously beaten the spinster, and the manufacture 
of cotton seemed likely to stand still because the yarn could 
not be woven more rapidly than an expert workman with Kay's 
improved fly shuttle could weave it. 

Such a result was actually contemplated by some of the lead-' 
ing manufacturers, and such a result might possibly have tem- 
porarily occurred if it had not been averted by the ingenuity of 
a Kentish clergyman. Edmund Cartwright, a clergyman residing 
in Kent, happened to be staying at Matlock in the summer of 
1784, and to be thrown into the company of some Manchester 
gentlemen. The conversation turned on Arkwright's machinery, 
and " one of the company observed that as soon as Arkwright's 
patenj expired so many mills would be erected and so much 
cotton spun that hands would never be found to weave it." 
Cartwright replied " that Arkwright must then set his wits to 



T}{E OKGA^'JZATION OF INDUSTKY 135 

work to invent a weaving mill/' The Manchester gentlemen, 
however, unanimously agreed that the thing was impracticable. 
Cartwright " controverted the impracticability by remarking 
that there had been exhibited an automaton figure which played 
at chess"; it could not be " more difficult to construct a machine 
that shall weave than one which shall make all the variety of 
moves which are required in that complicated game." Within 
three years he had himself proved that the invention was prac- 
ticable by producing the power loom. Subsequent inventors 
improved the idea which Cartwright had originated, and within 
fifty years from the date of his memorable visit to Matlock there 
were not less than one hundred thousand power looms at work 
in Great Britain alone. 

The inventions which have been thus enumerated are the most 
remarkable of the improvements which stimulated the develop- 
ment of the cotton industry. But other inventions, less gener- 
ally remembered, were hardly less w'onderful or less beneficial 
than these. Vp to the middle of the last century cotton could 
only be bleached by the cloth being steeped in alkaline lyes for 
several days, washed clean, and spread on the grass for some 
weeks to dry. The process had to be repeated several times, 
and many months were consumed before the tedious operation 
was concluded. Scheele, the Swedish philosopher, discovered 
in 1774 the bleaching properties of chlorine, or oxymuriatic 
acid. Berthollet, the French chemist, conceived in 1785 the 
idea of applying tlie acid to bleaching cloth. Watt, the inventor 
of the steam engine, and Henry, of ^Manchester, respectively 
introduced the new acid into the bleach fields of Macgregor of 
Glasgow and Ridgway of Bolton. The process of bleaching 
was at once reduced from months to days, or even hours. 

In the same year in which Watt and Henry were introducing 
the new acid to the bleacher. Bell, a Scotchman, was laying the 
foundations of a trade in printed calicoes. " The old method of 
printing was by blocks of sycamore, about 10 inches long by 
5 broad, on the surface of which the pattern was cut in relief 
in the common method of wood engraving." As the block had 
to be applied to the cloth by hand, " no more of it could be 



136 SELECTED HEADINGS IN ECONOMICS 

printed at once than the block could cover, and a single piece 
of calico twenty-eight yards in length required the application 
of the block four hundred and forty-eight times." This clumsy 
process was superseded by cylinder printing. "A polished copper 
cylinder several feet in length and three or four inches in diame- 
ter is engraved with a pattern round its whole circumference 
and from end to end. It is then placed horizontally in a press, 
and, as it revolves, the lower part of the circumference passes 
through the coloring matter, which is again removed from the 
whole surface of the cylinder, except the engraved pattern, by 
an elastic steel blade placed in contact with the cylinder, and 
reduced to so fine and straight an edge as to take off the color 
without scratching the copper. The color being thus left only 
in the engraved pattern, the piece of calico or muslin is drawn 
tightly over the cylinder, which revolves in the same direction 
and prints the cloth." The saving of labor " effected by the 
machine" is "immense ; one of the cylinder machines, attended 
by a man and a boy, is actually capable of producing as much 
work as could be turned out by one hundred block printers 
and as many tear boys." 

Such are the leading inventions which made Great Britain 
in less than a century the wealthiest country in the world. 
" When we undertook the cotton manufacture we had compara- 
tivel}^ few facilities for its prosecution, and had to struggle with 
the greatest difficulties. The raw material was produced at an 
immense distance from our shores, and in Hindustan and in 
China the inhabitants had arrived at such perfection in the arts 
of spinning and weaving, that the lightness and delicacy of their 
finest cloths emulated the web of the gossamer and seemed to 
set competition at defiance. Such, however, has been the influ- 
ence of the stupendous discoveries and inventions of Hargreaves, 
Arkwright, Crompton, Cartwright, and others, that we have over- 
come all these difficulties ; that neither the extreme cheapness of 
labor in Hindustan, nor the excellence to which the natives had 
attained, had enabled them to withstand the competition of those 
who buy their cotton, and who, after carrying it five thousand 
miles to be manufactured, carry back the goods to them." 



THE ORGAXlZATiON OF INDU STliV 1;J7 

If Great Britain entirely monopolized the woolen and the 
cotton trades, she had done her best, in her own way, to pro- 
mote the manufacture of linen in Ireland. In 1698 Parliament, 
while rigorously prohibiting the exportation of Irish woolen 
goods, seduloush" attempted to encourage the linen manufac- 
ture in Ireland, Bounties were paid on all linen goods imported 
into this country from the sister island ; and the great linen 
trade acquired, especially in Ulster, the importance which it 
still retains. In 1800, 31,978,039 yards of linen were exported 
from Ireland to Great Britain, and 2,585,829 yards to other 
countries. In 1815 the export trade had risen to 37,986,359 
and 5,496,206 yards respectively. A formidable rival to Ulster 
was, however, slowly rising in another part of the kingdom. 
At the close of the great French war Dundee was still an insig- 
nificant manufacturing town, but the foundations were already 
laid of the surprising supremacy which she has since acquired 
in the linen trade. Some three thousand tons of flax were im- 
ported into the Scotch port in 1814. But the time was rapidly 
coming when the shipments of linen from this single place were 
to exceed those from all Ireland, and Dundee was to be spoken 
of by professed economists as the Manchester of the linen trade. 

The silk manufacturers of Britain have never yet succeeded 
in acquiring the predominance which the woolen, cotton, and 
linen factors have virtually obtained. The worm, by which the 
raw material is produced, has never been acclimatized on a large 
scale in England ; and the trade has naturally flourished chiefly 
in those countries where the worm could live and spin, or where 
the raw material could be the most easily procured. Insular 
prejudice, moreover, should not induce the historian to forget 
another reason which has materially interfered with the develop- 
ment of this particular trade. The ingenuity of the British was 
superior to that of every other nation, but the taste of the 
British was inferior to that of most people. An article which 
was only worn by the rich, and which was only used for its 
beauty and delicacy, was naturally produced most successfully 
by the most artistic people. English woolen goods found their 
way to every continental nation, but the wealthy English 



138 SELECTED EEADINGS IN ECONOMICS 

imported their finest lustrings and a les modes from Italy and 
France. The silk trade would, in fact, have hardly found a 
home in England at all, had it not been for the folly of a neigh- 
boring potentate. Louis XIV, in a disastrous hour for France, 
revoked the Edict of Nantes ; and the French Huguenots, to 
their eternal honor, preferring their consciences to their country, 
sought a home amongst a more liberal people. The silk weavers 
of France settled in Spitalfields, and the British silk trade gained 
rapidly on its foreign rivals. Parliament adopted the usual 
clumsy contrivances to promote an industry whose importance 
it was no longer possible to ignore. Prohibitory duties, designed 
to discourage the importation of foreign silk, were imposed by 
the legislature ; monopolies were granted to successful throw- 
sters, and every precaution was taken which the follies of pro- 
tection could suggest, to perpetuate the supremacy which Great 
Britain was gradually acquiring in the silk trade. The usual 
results followed this shortsighted policy. Prohibitory duties 
encouraged smuggling. Foreign silk found its way into Eng- 
land, and the revenue was defrauded accordingly. The English 
trade began to decline, and Parliament again interfered to pro- 
mote its prosperity. In that unhappy period of English history 
which succeeds the fall of Chatham and the rise of Pitt, Par- 
liament adopted fresh expedients to promote the prosperity of 
the silk trade. Prohibitory duties were replaced with actual 
prohibition, and elaborate attempts were made to regulate the 
wages of the Spitalfields weavers. The natural consequences 
ensued. Smuggling, which had been created by prohibitive 
duties, flourished with fresh vitality under the influence of 
actual prohibition. The capitalists transferred their mills from 
Spitalfields, where the labors of their workmen were fixed by 
law, to Macclesfield and other places, where master and work- 
men were free to make their own terms. 

The silk trade was hardly being developed with the same 
rapidity as the three other textile industries. But silk, like 
wool, cotton, and linen, was affording a considerable amount of 
employment to a constantly growing population. The textile 
industries of this country could not, indeed, have acquired the 



THE UKGANIZATIOX OF IKDUSTliY 139 

importance which they have since obtained, if the inventions of 
Hargreaves, Arkwright, Crompton, and Cartwright had not 
been supplemented by the hibors of explorers in another field. 
Machinery makes possible what man by manual labor alone 
would find it impossible to perfonn. But machinery would be 
a useless incumbrance were it not for the presence of some motive 
power. From the earliest ages men have endeavored to supple- 
ment the brute force of animals with the more powerful forces 
which nature has placed at their disposal. The ox was not to 
be perpetually used to tread out the corn ; women were not 
always to pass their days laboriously grinding at a mill. The 
movement of the atmosphere, the flow of running water, were 
to be taken into alliance with man ; and the invention of wind- 
mills and water mills was to mark an advance in the onward 
march of civilization. But air and water, niighty forces as they 
are, proved but fickle and uncertain auxiliaries. When the wind 
was too low its strength was insufficient to turn the cumbrous 
sails of the mill ; when it was too high it deranged the com- 
plicated machinery of the miller. The miller who trusted to 
water was hardly more fortunate than the man who relied upon 
air. A summer drought reduced the power of his wheel at the 
very time when long days and fine weather made him anxious 
to accomplish the utmost possible amount of work. A flood 
swept away the dam on which his mill depended for its supply 
of water. An admirable auxiliary during certain portions of 
each year, water was occasionally too strong, occasionally too 
weak, for the purposes of the miller. 

The manufacturing industry of the country stood, therefore, 
in need of a new motive power ; and invention, which is sup- 
posed by some thinkers to depend like other commodities on the 
laws of demand and suppl3\ was busily elaborating a new problem, 
— the use of a novel power, which was to revolutionize the 
world. The elasticity of hot water had long been noticed, and 
for a century and a half before the period of this history a few 
advanced thinkers had been speculating on the possibility of 
utilizing the expansive powers of steam. The Marquis of 
Worcester had described, in his " Century of Inventions," " an 



140 SELECTED READINGS IN ECONOMICS 

admirable and most forcible way to drive up water by means of 
fire." Steam was actually used early in the eighteenth century 
as a motive power for pumping water from mines ; and New- 
comen, a blacksmith in Dartmouth, invented a tolerably efficient 
steam engine. It was not, however, till 1769, that James Watt, 
a native of Greenock, and a mathematical-instrument maker in 
Glasgow, obtained his first patent for " methods of lessening the 
consumption of steam, and consequently of fuel, in fire engines." 
James Watt was born in 1736. His father was a magistrate, 
and had the good sense to encourage the good turn for mechanics 
which his son displayed at a very early age. At the age of 
nineteen Watt was placed with a mathematical-instrument maker 
in London, but feeble health, which had interfered with his 
studies as a boy, prevented him from pursuing his avocations 
in England. Watt returned to his native country. The Glas- 
gow body of Arts and Trades, however, refused to allow him 
to exercise his calling within the limits of their jurisdiction ; 
and had it not been for the University of Glasgow, which be- 
friended him in his difficulty and appointed him their mathe- 
matical-instrument maker, the career of one of the greatest 
geniuses whom Great Britain has produced would have been 
stinted at its outset. 

There happened to be in the university a model of New- 
comen's engine. It happened, too, that the model was defect- 
ively constructed. Watt, in the ordinary course of his business, 
was asked to remedy its defects, and he soon succeeded in doing 
so. But his examination of the model convinced him of serious 
faults in the original. Newcomen had injected cold water into 
the cylinder in order to condense the steam and thus obtain a 
necessary vacuum for the piston to work in. Watt discovered 
that three fourths of the fuel which the engine consumed was 
required to reheat the cylinder. "It occurred to him that, if the 
condensation could be performed in a separate vessel, communi- 
cating with the cylinder, the latter could be kept hot, while the 
former was cooled, and the vapor arising from the injected water 
could also be prevented from impairing the vacuum. The com- 
munication could easily be effected by a tube, and the water 



THE ORGANIZATION OF INDUSTRY 141 

could be pumped out. This is the tirst and the grand invention 
by which he at once saved three fourths of the fuel and increased 
the power one fourth, thus making every pound of coal produce 
five times the force formerly obtained from it." But Watt was 
not satisfied with this single improvement. lie introduced steam 
above as well as below the piston, and thus again increased the 
power of the machine. He discovered the principle of parallel 
motion, and thus made the piston move in a true straight line. 
He regulated the supply of water to the boiler by the means of 
" floats," the supply of steam to the cylinder by the application 
of " the governor," and, by the addition of all these discoveries, 
" satisfied himself that he had almost created a new engine of 
incalculable power, universal application, and inestimable value." 
It is unnecessary to relate in these pages the gradual introduc- 
tion of the new machine to the manufacturing public. Watt 
was first connected with Dr. Roebuck, an iron master of Glas- 
gow, but his name is permanently associated with that of 
Mr. Boulton, the proprietor of the Soho Works near Birming- 
ham, whose partner he became in 1774. Watt and Boulton 
rapidly supplemented the original invention with further im- 
provements. Other inventors succeeded in the same field, and 
by the beginning of the present century steam was established 
as a new force ; advanced thinkers were considering the possi- 
bility of applying it to purposes of locomotion. 

The steam engine, indeed, would not have been invented in the 
eighteenth century, or would not at any rate have been dis- 
covered in this country, if it had not been for the vast mineral 
wealth with which Great Britain has fortunately been provided. 
Iron, the most usefnl of all metals, presents greater difficulties 
than any other of them to the manufacturer, and iron was prob- 
ably one of the very last mii]erals which was applied to the 
service of man. Centuries elapsed before the rich mines of our 
own country were even slightly worked. The Romans, indeed, 
established iron works in Ciloucestershire, just as they obtained 
tin from Cornwall or lead from Wales. But the British did not 
imitate the example of their earliest conquerors, and the little 
iron which was used in tliis country was imported from abroad. 



142 SELECTED KEADINGS IN ECONOMICS 

Some progress was, no doubt, made in the southern counties, 
the smelters naturally seeking their ores in those places where 
wood, then the only available fuel, was to be found in abundance. 
The railings which but lately encircled our metropolitan cathe- 
dral were cast in Sussex. But the prosperity of the trade 
involved its own ruin. Iron could not be made without large 
quantities of fuel. The wood gradually disappeared before the 
operations of the smelter, and the country gentlemen hesitated 
to sell their trees for fuel when the increase of shipping was 
creating a growing demand for timber. Nor were the country 
gentlemen animated in this respect by purely selfish motives. 
Parliament itself shared their apprehensions and indorsed their 
views. It regarded the constant destruction of timber with such 
disfavor that it seriously contemplated the suppression of the 
iron trade as the only practical remedy. " Many think," said a 
contemporary writer, " that there should be no works anywhere, 
they so devour the woods." Fortunately, so crucial a remedy 
was not necessary. At the commencement of the seventeenth 
century Dud Dudley, a natural son of Lord Dudley, had proved 
the feasibility of smelting iron with coal ; but the prejudice and 
ignorance of the work people had prevented the adoption of his 
invention. In the middle of the eighteenth century attention 
was again drawn to his process, and the possibility of substitut- 
ing coal for wood was conclusively established at the Darby's 
works at Coalbrook Dale. The impetus which was thus given 
to the iron trade was extraordinary. The total produce of the 
country amounted at the time to only 18,000 tons of iron a year, 
four fifths of the iron used being imported from Sweden. In 
1802 Great Britain possessed 168 blast furnaces, and produced 
170,000 tons of iron annually. In 1806 the produce had risen 
to 250,000 tons; it had increased in 1820 to 400,000 tons. 
Fifty years afterwards, or in 1870, 6,000,000 tons of iron were 
produced from British ores. 

The progress of the iron trade indicated, of course, a corre- 
sponding development of the supply of coal. Coal had been 
used in England for domestic purposes from very early periods. 
Sea coal had been brought to London ; but the citizens had 



THK ORGANIZATION OF INDUSTliV 143 

complained that the smoke was injurious to their health, and 
had persuaded the legislature to forbid the use of coal on sani- 
tary grounds. The convenience of the new fuel triumphed, 
however, over the arguments of the sanitarians and the prohibi- 
tions of the legislature, and coal continued to be brought in 
constantly though slowly increasing quantities to London. Its 
use for smelting iron led to new contrivances for insuring its 
economical production. Before the commencement of the present 
century there were two great difficulties which interfered with 
the operations of the miner. The roof of the mine had neces- 
sarily to be propped, and, as no one had thought of using wood, 
and coal itself was employed for the purpose, only 60 per cent 
of the produce of each mine was raised above ground. About 
the beginning of the nineteenth century timber struts were 
gradually substituted for the pillars of coal, and it became con- 
sequently possible to raise from the mine all the coal won by 
the miner. A still more important discovery was made at the 
exact period at which this history commences. The coal miner 
in his underground calling was constantly exposed to the dangers 
of fire damp, and was liable to be destroyed without a moment's 
notice by the most fearful catastrophe. In the year in which 
the great French war was concluded. Sir Humphry Davy suc- 
ceeded in perfecting his safety lamp, an invention which enabled 
the most dangerous mines to be worked witli comparative safety, 
and thus augmented to an extraordinary extent the available 
supplies of coal. 

Humphry Davy was the son of a wood carver of Penzance, 
and early in life was apprenticed to a local apothecary. Chance 
— of which other men would perhaps have failed to avail them- 
selves — gave the lad an opportunity of cultivating his taste for 
chemistry. A French surgeon, wrecked on the coast, to whom 
Davy had shown some kindness, gave him a case of surgical 
instruments and ''the means of making some approximation to 
an exhausting engine." Watt's son, Gregory Watt, was ordered 
to winter in Cornwall for liis health, and happened to take apart- 
ments in the house of Davy's mother. " vVnother accident threw 
him in the way of Mr. Davies Giddy, a cultivator of natural as 



144 SELECTED EEADINGS IN ECONOMICS 

well as rnathematical science." Giddy " gave to Davy the use 
of an excellent library " ; he " introduced him to Dr. Beddoes," 
who made his young friend the head of " a pneumatic institution 
for the medical use of gases," which he was then forming. The 
publication, soon afterwards, of a fanciful paper on light and 
heat gave Davy a considerable reputation. He was successively 
chosen assistant lecturer in chemistry, and sole chemical professor 
of the Royal Institution. While he held this office his inquiries 
induced him to investigate the causes of the fearful explosions 
which continually took place in coal mines. He soon satisfied 
himself that carbureted hydrogen is the cause of fire damp, and 
that it will not explode unless mixed with atmospheric air " in 
proportions between six and fourteen times its bulk"; and "he 
was surprised to observe in the course of his experiments, made 
for ascertaining how the inflammation takes place, that the 
flames will not pass through tubes of a certain length and small- 
ness of bore. He then found that if the length be diminished 
and the bore also reduced, the flames will not pass ; and he 
further found that by multiplying the number of the tubes this 
length may be safely diminished, provided the bore be propor- 
tionally lessened. Hence it appeared that gauze of wire, whose 
meshes were only one twenty-second of an inch in diameter, 
stopped the flame and prevented the explosion." These succes- 
sive discoveries, the results of repeated experiments and careful 
thought, led to the invention of the safety lamp. The first 
safety lamp was made in the year 1815. There is some satis- 
faction in reflecting that the very year which was memorable 
for the conclusion of the longest and most destructive of modern 
wars was also remarkable for one of the most beneficial dis- 
coveries which have ever been given to mankind. Even the 
peace of Paris did not probably save more life or avert more 
suffering than Sir Humphry Davy's invention. The gratitude 
of a nation properly bestowed titles and pensions, lands and 
houses, stars and honors, on the conqueror of Napoleon. Custom 
and precedent only allowed inferior rewards to the inventor of 
the safety lamp. Yet Hargreaves and Arkwright, Crompton and 
Cartwright, Watt and Davy, did more for the cause of mankind 



THE ORGAXIZATION OF INDUSTRY 145 

than even Wellington. Their lives had more influence on their 
country's future tiian the career of the great general. His 
victories secured his country peace for rather more than a 
generation. Their inventions gave Great Britain a commercial 
supremacy which neither war nor foreign competition has yet 
destroyed. 

A series of extraordinary inventions at the commencement of 
the present century had supplied Great Britain with a new 
manufacturing vigor. Hargreaves, Arkwright, Crompton, and 
Cartwright had developed, to a remarkable degree, the produc- 
ing power of man ; Watt had given a new significance to their 
inventions by superseding the feeble and unequal forces, which 
had hitherto been used, with the most tractable and powerful of 
agents. And Davy, by his beneficent contrivance, had enabled 
coal to be won with less danger, and had relieved the miner's 
life from one of its most hideous perils. The ingenuity of these 
great men had been exercised with different objects ; but the 
inventions of each of them had given fresh importance to the 
discoveries of the others. The spinning jenny, the water frame, 
and the mule would have been deprived of half their value, if 
they had not been supplemented with the power loom ; the 
power loom would, in many places, have been useless without 
the steam engine ; the steam engine would have been idle, had 
it not been for coal ; the coal would not have been won without 
danger, had it not been for Sir H. Dav}-. Coal, then, was the 
commodity whose extended use was gradually revolutionizing 
the world ; and the population of the world, as the first conse- 
quence of the change, gradually moved towards the coal fields. 

4. The Growth of the Factory System in the United States • 

In this countrv, as well as in England, the germ of the textile 
factory existed in the fulling and carding mills ; the former, 
dating earlier, being the mills for finishing the coarse cloths 
woven by hand in the homes of our ancestors : in the latter, 
the carding mill, the wool was prepared for tlie hand wheel. At 
1 From Tenth Census, II, 53T-M1. 



146 SELECTED READINGS IN ECONOMICS 

the close of the Revolution the domestic system of manufactures 
prevailed throughout the states. 

The first attempts to secure the spinning machinery which 
had come into use in England were made in Philadelphia early 
in the year 1775, when probably the first spinning jenny ever 
seen in America was exhibited in that city. During the war 
the manufacturers extended their enterprises, and even built 
and run mills which writers often call factories, but they can 
hardly be classed under that term. Similar efforts, all prelimi- 
nary to the establishment of the factory system, were made in 
Worcester, Massachusetts, in 1780. In 1781 the British Par- 
liament, determined that the textile machinery by which the 
manufactures of England were being rapidly extended, and 
which the continental producers were anxious to secure, should 
not be used by the people of America, reenacted and enlarged 
the scope of the Statute of 1774 against its exportation. By 
21 George III, c. 37, it was provided that any person who 
packed or put on board, or caused to be brought to any place 
in order to be put on any vessel for exportation, any machine, 
engine, tool, press, paper, utensil, or implement, or any part 
thereof, which now is or hereafter may be used in the woolen, 
cotton, linen, or silk manufacture of the kingdom, or goods 
wherein wool, cotton, linen, or silk are used, or any model or 
plan of such machinery, tool, engine, press, utensil, or imple- 
ment, should forfeit every such machine, etc., and all goods 
packed therewith, and X200, and suffer imprisonment for one 
year. In 1782 a law was enacted which prohibited, under 
penalty of X500, the exportation or the attempt to export 
" blocks, plates, engines, tools, or utensils used in or which are 
proper for the preparing or finishing of the calico-, cotton-, 
muslin-, or linen-printing manufactures, or any part thereof." 
The same act prohibited the transportation of tools employed 
in the iron and steel manufactures. Acts were also passed 
interdicting the emigration of artificers. All these laws were 
enforced with great vigilance, and were of course serious ob- 
stacles to the institution of the new system of manufacture 
in America. 



THE ORGANIZATION OF INDUSTKY 147 

The manufacturers of this country were thus compelled either 
to smuggle or to invent their machinery. Both methods were 
practiced until most of the secrets of the manufacture of common 
goods were made available here. 

The planting of the mechanic arts in this country became a 
necessity during the War of the Revolution, and afterwards 
the spirit of American enterprise demanded that New England 
and the Middle States should utilize the water powers which 
they possessed, and by such utilization supply the people with 
home manufactures. 

When the people of the states saw that the treaty of Paris 
had not brought industrial independence, a new form of expres- 
sion of patriotism took the place of military service ; and asso- 
ciations were formed, the object of which was to discourage the 
use of British goods ; and as the Articles of Confederation did 
not provide for the regulation of commerce, the legislatures of 
the states were besought to protect home manufactures. The 
Constitution of 1789 remedied the defects of the articles in 
this respect, and gave Congress the power to legislate on com- 
mercial affairs. The Constitution was really the outcome of 
the industrial necessities of the people, because it was on account 
of the difficulties and the irritations growing out of the various 
commercial regulations of the individual states that a conven- 
tion of commissioners from the various states was held at 
Annapolis in September, 1786, which convention recommended 
the one that framed the new or present Constitution of the 
United States. 

Of course those industries whose products were called for by 
the necessities of the war were greatly stimulated, but with peace 
came reaction and the flooding of our markets with foreign goods. 

The second act under the Constitution was passed July 4, 
1789, with this preamble : 

" Whereas it is necessary for the support of the government, 
for the discharge of the debts of the United States, and for the 
encouragement and the protection of manufactures, that duties 
be laid on goods, wares, and merchandise imported ; 

" Be it enacted, etc." 



148 SELECTED READINGS IN ECONOMICS 

Patriotism and statute law thus paved the way for the 
importation of tlie factory system of industry, and so its institu- 
tion here, as well as in England, was the result of both moral 
and economical forces. 

As early as 1786, before the adoption of the Constitution of the 
United States, the legislature of Massachusetts offered encour- 
agement for the introduction of machinery for carding and spin- 
ning by granting to Robert and Alexander Barr the sum of two 
hundred pounds to enable them to complete a roping machine, 
and also to " construct such other machines as are necessary for 
the purpose of carding, roping, and spinning of sheep's wool, as 
well as of cotton wool." The next year these parties were 
granted six tickets in a land lottery. Others engaged in the 
invention and construction of cotton-spinning machines at 
Bridgewater, being associated with the Barrs, who came to 
Massachusetts from Scotland at the invitation of Honorable 
Hugh Orr, of Bridgewater, and for the purpose of constructing 
spinning machines. There is no doubt that the machinery built 
by them was the first in this country which included the Ark- 
Avright devices ; the first factory, however, in America expressly 
for the manufacture of cotton goods was erected at Beverly, 
Massachusetts, in 1787. This enterprise was aided by the 
legislature. The factory at Beverly was built of brick, was 
driven by horse power, and was continued in operation for 
several years ; but its career as a cotton mill was brief, and no 
great success attended it. About the same time other attempts 
had been made in Rhode Island, New York, and Pennsylvania, 
but principally in Rhode Island and that part of Massachusetts 
contiguous to Rhode Island. 

The honor of the introduction of power-spinning machines in 
this country, and of their early use here, is shared by these last- 
named states ; for while Massachusetts claims to have made the 
first experiments in embodying the principles of Arkwright's 
inventions and the first cotton factory in America, Rhode Island 
claims the first factory in which perfected machinery, made 
after the English models, was practically employed. This was 
the factory built hy Samuel Slater, in 1790, in Pawtucket, 



THE OKCJAXIZATION OK INDUSTRY 140 

Rhode Island, which still stands in the rear of Mill street in 
that city, and tlie hum of cotton machinery can still be heard 
within its walls. Previous to 1790 the common jenny and 
stock card had been in operation upon a small scale in various 
parts of the United States, but principally in Pennsylvania, 
New York, Rhode Island, and ^lassachusetts ; but every 
endeavor to introduce the system of spinning known as water- 
frame spinning, or Arkwright's method, had failed. The intro- 
duction of this system was the work of Slater, whom President 
Jackson designated " the father of American manufactures." 
Samuel Slater was born in Belper, Derbyshire, England. June 
9, 17G8, and at fourteen years of age was bound as an appren- 
tice to Jedediah Strutt, Esq., a manufacturer of cotton machinery 
at ]Milford, near Belper. Strutt was for several years a partner 
of Sir Richard Arkwright in the cotton-spinning business, so 
3-oung Slater had every opportunity to master the details of 
the construction of the cotton machinery then in use in England, 
for during the hist four or five years of his apprenticesliip he 
served as general overseer, not only in making machinery, but 
in the manufacturing department of Strutt's factory. Near the 
close of his term his attention was drawn to the wants of the 
states by accidentally seeing a notice in an American paper of 
the efforts various states were making by way of offering 
bounties to parties for the production of cotton machinery. 
Slater knew well that under the laws of England he could 
carry neither machines nor models nor plans of machines out of 
the country ; so, after completing his full time with Mv. Strutt, 
he continued some time longer with him, superintending some 
new works Mr. Strutt was erecting. This he did that he might 
so perfect his knowledge of the business in every department 
that he could construct machinery from memory without taking 
plans, models, or specifications. With this knowledge Slater 
embarked at London, September 13, 1789, for New York, 
where he landed November 17, and at once sought parties intei- 
ested in cotton manufactures. Finding the works of the New 
York Manufacturing Company, to whom he was introduced, 
unsatisfactory, he corresponded with Messre. Brown & Almy, 



150 SELECTED KEADINGS IN ECONOMICS 

of Providence, who owned some crude spinning machines, some 
of which came from the factory at Beverly, Massachusetts. 
In January, 1790, Slater made arrangements with Brown & 
Almy to construct machinery on the English plan. This he did 
at Pawtucket, making the machinery principally with liis own 
hands, and on the 20th of December, 1790, he started three 
cards, drawing and roving, together with seventj^-two spindles, 
working entirely on the Arkwright plan, and being the first of 
the kind ever operated in America. 

It is generally supposed that the course of the progress of 
the manufacture of cotton goods in this country is quite clearly 
marked, yet a careful study of the subject seems rather to dissi- 
pate the line of advancement instead of bringing it into clearer 
view. Dr. Leander Bishop, in his exceedingly valuable work, 
" A History of American Manufactures," in speaking of the 
clothing manufacture, states that a correspondent of the Amer- 
ican Museum, writing from Charleston, South Carolina, in July, 
1790, refers to a gentleman who "had completed, and had in 
operation on the High Hills of the Santee, near Statesburg, 
ginning, carding, and other machines driven by water, and also 
spinning machines, with eighty-four spindles each, with every 
necessary article for manufacturing cotton. If this information 
be correct, the attempt to manufacture by machinery the cotton 
which they were then beginning to cultivate extensively was 
nearly as early as those of the Northern States." 

Certainly this bit of history of attempts in Southern States, 
of the efforts of Samuel Wetherell of Philadelphia, of the 
Beverly Company in Massachusetts, of Moses Brown at Provi- 
dence, Rhode Island, — all before Slater's coming, — to introduce 
spinning by power illustrates the difficulty of locating the origin 
of an institution when a country of such proportions as our own 
constitutes the field. It is safe, historically, to start with Slater 
as the first to erect cotton machinery on the English plan, and 
to give the factory system 1790 as its birthday. 

The progress of the system has been uninterrupted froml790, 
save by temporary causes and for brief periods ; but these 
interruptions only gave an increased impetus to its growth. 



THE ORGANIZATION OF INDU8TKY 151 

In 1792, by the invention of the cotton gin, an American, Eli 
Whitney, of Massachusetts, residing temporarily in Georgia, 
contributed as much toward the growth of the factory system 
as England ha^ contributed by the splendid series of inventions 
which made the cotton-manufacturing machinery of the system. 

The alarm of the people at the increase in the demand for 
foreign goods took shape again in 1794 and the decade following, 
and, by patriotic appeals to all classes, societies and clubs were 
formed pledged to wear only homemade goods. Congress was 
called upon to restrict importations. The result of all these 
efforts and influences stimulated the manufacture of cotton and 
other textiles. The water privileges of New England and the 
Middle States offered to enterprising men the inducement to 
build factories for the spinning of yarn for the household manu- 
facture of cloth. At the close of 1809, according to a report 
made by Mr. Albert Gallatin, Secretary of the Treasury in 
1810, eighty-seven cotton factories had been erected in the 
United States, which, when in operation, would employ eighty 
thousand spindles. 

The perfect factory, the scientific arrangement of parts for 
the successive processes necessary for the manipulation of the 
raw material till it came out finished goods, had not yet been 
constructed. As I liave sai<l, the power loom did not come into 
use in England till about 180G, while in this country it was not 
used at all till after the War of 1812. In England, even, it had 
not been used in the same factory with the spinning machines. 
In fact, for many years the custom of spinning the yarn under 
one management and weaving the cloth under another has 
prevailed in England. 

In 1811 Mr. Francis C. Lowell, of Boston, visited England, 
and spent much time in inspecting cotton factories, for the pur- 
pose of obtaining all possible information relative to cotton 
manufacture, with a view to the introduction of improved 
machinery in the United States. The power loom was being 
introduced in Great Britain at this time, but its construction 
was kept very secret, and public opinion was not very favorable 
to its success. Mr. Lowell learned all he could regarding the 



152 SELECTED KEADINGS IN ECONOMICS 

new machine, and determined to perfect it himself. He returned 
to the states in 1814, and at once began his experiments on 
Broad street, Boston. His first move was to secure the skill 
of Paul Moody, of Amesbury, Massachusetts, a well-known 
mechanic. By and through the encouragement of Mr. Nathan 
Appleton a company had been organized by Mr. Lowell and 
Mr. Patrick T. Jackson, with Mr. Appleton as one of its direc- 
tors, for the establishment of a cotton manufactory, to be located 
in Waltham, Massachusetts, on a water privilege they had pur- 
chased. This factory was completed in the autumn of 1814, and 
in it was placed the loom perfected by Mr. Lowell, which differed 
much from the English looms. Mr. Lowell had neither plans 
nor models for his factory and looms, but in the year named 
the companjr set up a full set of machinery for weaving and 
spinning, there being seventeen hundred spindles ; and this fac- 
tory at Waltham was the first in the world, so far as record 
shows, in which all the processes involved in the manufacture 
of goods, from the raw material to the finished product, were 
carried on in one establishment by successive steps, mathemat- 
ically considered, under one harmonious system. Mr. Francis 
C. Lowell, aided by Mr. Jackson, is unquestionably entitled to 
the credit of arranging this admirable system, and it is remark- 
able how few changes have been made in the arrangements estab- 
lished by him in this factory at Waltham. 

So America furnished the stone which completed the indus- 
trial arch of the factory system of manufactures. 

The growth of the factory system is well illustrated by the 
cotton manufacture. After the success of the power loom the 
cotton manufacture took rapid strides, both in Europe and 
America. The hand loom and the hand weaver were rapidly 
displaced. Factories sprung up on all the streams of Yorkshire 
and Lancashire, in England, while in this country the activity 
of the promoters of the industry won them wealth and won 
cities from barren pastures. They erected Lowell, Lawrence, 
Holyoke, Fall River, and many other thriving cities and towns, 
and now in this generation the industry is taking root upon the 
banks of southern streams. 



THE ()K(JAMZAT1()N OF INDUSTRY loo 

This system obtained its first foothold in the United States 
during the period of embargo and the War of 1812.' The manu- 
facture of cotton and wool passed rapidly from the household 
to the mill ; but the methods of domestic and neighborhood 
industry continued to predominate, even in these industries, 
down to and including the decade between 1820 and 1830 ; and 
it was not until about 1840 that the factory method of manu- 
facture extended itself widely to miscellaneous industries, and 
began rapidly to force from the market the handmade products 
with which every community had hitherto chiefly supplied 
itself. It seems probable that until about the year 1850 the 
bulk of general manufacturing done in the United States was 
carried on in the shop and the household, by the labor of the 
family or individual proprietors, with apprentice assistants, as 
contrasted with the present system of factory labor compensated 
by wages and assisted by power. 

The census of 1850 is therefore the proper starting point for 
the comparative statistics of manufactuies, although it is not 
possible to make any analysis of the figures returned by that 
census, which will determine with certainty the proportion of 
manufactures produced in factories, in distinction from the 
products of the household and of the neighborhood shop. Since 
the date of that census the relative value of the manufactured 
products of the shop and the household has steadily decreased, 
until, at the twelfth census, it represents but an insignificant 
part, say one thirteenth, of the total value of products. 

It is not to be inferred, however, that no notable ventures in 
the direction of large factory production had been made in tiie 
United States prior to 1850. Tiie city of Lowell, in Massachu- 
setts, was founded in 1823, and from the start was preemi- 
nently a mill city. The Middlesex Mills were started there in 
1830, with a capital of •ii'500,000, which was soon increased to 
I'l, 000,000 ; the Lowell carpet mills were organized in 1828; 
and the Merrimac, the Hamilton, and other large cotton corpo- 
rations were organized before 1830. The city of Lawrence was 

1 From the Twelfth Census Report on Manufactures, I. liii, the following 
additional data may be supplied. — Eu 



154 SELECTED READINGS IN ECONOMICS 

founded in 1845, starting with the great Bay State Mills, a 
wool-manufacturing corporation with i>l, 000,000 capital. This 
was followed in 1853 by the Pacific Mills, with $2,000,000 
capital, which produced, according to the census of 1860, 
11,000,000 yards of dress goods. The number of cotton spindles 
in operation in Massachusetts was, in round numbers, 340,000 
in 1830, 624,000 in 1840, 1,288,000 in 1850, and 1,688,500 in 
1860, showing the rapid development of cotton manufactures 
then in progress. The organization of great corporations in iron 
and steel, in foundry products of every variety, in leather, and 
in other industries, dates from the decade ending with 1860, or 
even earlier. 



CHAPTER VI 

THE MANUFACTURING INDUSTRIES OF THE UNITED 

STATES 

1. The Advantages of the United States for Manufacturing Industries^ 

This rapid rise of the United States to the first position 
among manufacturing nations is attributable to certain distinct 
causes, natural and otherwise, five of which may be definitely 
formulated, as follows : 

1. Agricultuial resources. 

2. Mineral resources. 

3. Highly developed transportation facilities. 

4. Freedom of trade between states and territories. 

5. Freedom from inherited and over-conservative ideas. 

A study of these causes affords an explanation of the great 
development of manufacturing in the United States in the past, 
as well as an indication of its possibilities in the future. 

1. Agricultural resources. Most obvious among the natural 
advantages of the United States is its possession of every variety 
of soil, and every climate except the tropical. There is thus an 
abundance of food supplies of almost every form for the con- 
sumption of the people, and abundant raw agricultural materials 
for the use of manufactures. Both food supplies and agricultural 
materials for manufacture are cheaper, more abundant, and more 
varied in the United States than in any other manufacturing 
country. As a consequence the manufacturing devek)pment of 
the country has extended to nearly every form of industry which 
ministers to the comfort and necessities of man. In many locali- 
ties the character of the manufactures has been determined 
laigely by climatic conditions and by the character of products 
to which the soil of such localities is especially adapted. 

1 P'rom Twelfth Census, Report on Manufactures, I, Ivi-lix. 
15r> 



156 



SELECTED READINGS IN ECONOMICS 



In the production of cotton, the leading textile staple, the 
United States is preeminent, furnishing 86.1 per cent of the 
world's production of cotton in 1899-1900. This is shown by 
Table I, which states the production of cotton in the leading 
countries of the world from 1890-1891 to 1899-1900. 

Table I — Production of cotton in 500-pound hales for the 
United States and other countries : 1890-1891 to 1899-1900 



1899-1900 
1898-1899 
1897-1898 
1896-1897 
1895-1896 
1894-1895 
1893-1894 
1892-1893 
1891-1892 
1890-1891 



Total 


United States 


Other Couktries 


10,612,000 


9,137,000 


1,475,000 


12,987,000 


11,078,000 


1,909,000 


12,743,000 


10,890,000 


1,853,000 


10,670,000 


8,435,000 


2,235,000 


8,901,000 


6,912,000 


1,989,000 


11,298,000 


9,640,000 


1,658,000 


9,324,000 


7,136,000 


2,188,000 


8,607,000 


6,435,000 


2,172,000 


10,552,000 


8,640,000 


1,912,000 


10,127,000 


8,137,000 


1,990,000 



The forests of the United States furnish practically all the 
material required for the extensive wood- working industries of 
the country, and lumber valued at more than thirty million 
dollars is now exported annually. The only foreign sources 
upon which the United States relies for additional supplies of 
lumber are Canada, the West Indies, and Central and South 
America, the last two furnishing mahogany, rosewood, Span- 
ish cedar, etc., required in the manufacture of pianos and fine 
furniture. 

2. Mineral resources. In the second place, the United States 
produces nearly every mineral required for manufacturing indus- 
tries. In most of these the supplies appear to be sufficient for 
years to come, and are obtainable at prices which compare favor- 
ably with prices in other parts of the world. 

Coal, the basis of modern manufactures, exists in great abun- 
dance, and the fields are so widely distributed throughout the 
country as to afford easy transportation, by rail or water, to the 



THE MANUFACTURING INDUSTRIES 



157 



chief distributing points and manufacturing centers. The total 
production of coal in the United States in 1899 was 175,428,300 
metric tons of bituminous coal, valued at $167,935,304, and 
54,825,776 metric tons of anthracite coal, valued at $88,142,130. 
Reference should be made also to the extensive supplies of 
natural gas, a fuel which is utilized chiefly in manufacturing. 
In 1899 the estimated value of natural gas was $20,024,873. 
It is impossible to ascertain from the census reports the actual 
consumption of coal in manufacturing, but the reported cost of 
all fuel consumed in manufacturing during the census year 
was $205,320,632. The coal production of the United States 
is now larger than that of any other country, having passed 
the production of Great Britain for the first time in 1899. The 
world's estimated production of coal for 1890 and 1899 is 
shown in Table II. 

Table II — World's production of coal in metric tons,^ by 
countries : 1890 and 1899 ^ 



Countries 



All countries 



1899 



(20,220,768 



United States . . 
Great Britain . . , 
Germany . . . . 
Austria-Hungary 
France .... 

Belgium 

Russia .... 
Japan .... 
All other countries 



230,254,076 
223,689,796 
13.5,824,427 
38,739,000 
32,863.000 
21,917,740 
13,104,000 



23,828,719 



1890 



511,482,074 



143,167,843 

184,580,765 

89,290.834 

27,-504,032 

26,083,118 

20,366,960 

6,016,625 

2,653,000 

11,819,997 



It appears from Table II that the production of coal in the 
United States has increased 60.8 per cent since 1890. In that 
year its production constituted 28 per cent of the woild's 
estimated production, as compared with 32 per cent in 1899. 

1 Tons of 2204 pounds. 

^ United States Geological Survey, Mineral Resources, 1900, p. 316, et seq. 



158 



SELECTED READINGS IN ECONOMICS 



A supply of iron ore is equally important to the manufacturing 
development of a country. Table III shows that in this mineral, 
as in production of coal, the United States leads all countries. 

Table III — World's production of iron ore, iyi metric tons,^ hy 
countries : 1890 and 1899 ^ 



Countries 



1899 



1890 



All countries . . 

United States .... 

Great Britain 

France 

Germany and Luxemburg 

Belgium 

Spain 

Sweden 

Italy 

Austria-Hungary . . . 

Canada 

India 

Algeria 

All other countries . . 



79,003,522 



57,098,278 



25,086,346 


16,297,975 


14,697,540 


14,005,861 


4,985,702 


2,579,465 


17,989,635 


11,406,1323 


201,445 


202,431* 


9,397,7.33 


5,788,742 


2,435,200 


941,241 


236,549 


173,489* 


3,293,003 


2,200,000 


67,711 


69,429 


61,717 


e) 


550,941 


e) 




.3,433,5136 



It appears from Table III that the production of iron ore in 
the United States increased 53.9 per cent between 1890 and 
1899, constituting 28.5 per cent of the world's estimated produc- 
tion in 1890 and 31.8 per cent in 1899. The stimulus these 
supplies of the ore have given to the manufacture of iron is 
seen in the remarkable advance in this industry during the last 
two decades. The United States passed Great Britain between 
1880 and 1890, becoming the leading pig-iron-producing country 
in the world. Between 1890 and 1899 the increase in production 
in the United States was 4,418,000 tons, while in Great Britain 
it was 1,401,105 tons. The pig-iron production of the United 

1 Tons of 2204 pounds. 

2 United States Geological Survey, Mineral Resources, 1900, p. 91 ; 1890, p. 22. 

3 For 1887. * For 1889. s Not reported separately. 
6 Including Russia (1888) and Cuba (1890). 



THE .MANUFACTURING INDUSTRIES 



159 



States in 1899 was 13,620,703 tons, or 34.1 per cent of the 
world's production. 

A special advantage connected with the abundance of coal 
and iron ores in the United States is the fact that deposits of 
these minerals, together with deposits of limestone, which is used 
for fluxing the iron ore, are frequently found in the same locality, 
thus greatly facilitating their use in manufactures. 

In the production of crude copper the advance of tlie United 
States to the front rank has been even more rapid and remark- 
able. Statistics of the world's output in 1850 place the copper 
production of all countries in that year at 52,250 tons, to which 
quantity Chile contributed 14,300 tons, Great Britain, 11,800 
tons, Russia, 6000 tons, Japan, 3000 tons, and the United 
States only 650 tons. In 1899 the world's output of copper was 
estimated at 463,303 long tons, of which quantity the United 
States produced 253,870 long tons, or nearly four hundred times 
its production in 1850. The production in 1899 constituted 54.8 
per cent of the world's estimated production, as given in Table 
IV, placing the United States first in this field also. 

Table IV — WorhVs production of copper, in long tons, 
1800 and 1899 i 



Total . . 

Europe . . . 
North America 
South America 
Africa . . . 
Asia . . . . 
Australasia 



1S99 



46.3,30.3 



1890 



272.620 



92,993 


79,952 


282,6,36 


124,711 


32,730 


33,960 


6,490 


6,570 


27,.'J60 


17,972 


20,894 


9,455 



Of the 253,870 tons of copper produced in the United States 
in 1899, 123,413 tons were exported, leaving for home consump- 
tion a total of 130,457 tons. This extraordinary development 



1 United States Geological Survey, Mineral Resources, 1900, j). 18(). 



160 SELECTED HEADINGS IN ECONOMICS 

in the production of crude copper was due to the increase in the 
world's demand for copper, arising largely from the rapid develop- 
ment of the electrical industries. Partly because of the abundant 
supplies of crude copper, the United States has now taken first 
rank among the nations in the manufacture of copper goods. 

There is also an abundance of most of the minor metals. The 
production of lead increased from 143,630 short tons in 1890 to 
210,500 short tons in 1899 ; zinc production increased from 
63,683 short tons in 1890 to 129,051 short tons in 1899 ; quick- 
silver from 22,926 flasks (of 76i- pounds avoirdupois net) in 1890 
to 30,454 flasks in 1899 ; and aluminum from 61,281 pounds 
(including aluminum alloys) in 1890 to 5,200,000 pounds in 
1899. There have been corresponding increases in the produc- 
tion of practically all the non-metallic minerals consumed in 
manufactures. 

On the other hand, the United States relies in constantly 
decreasing degree upon the ores of other countries. Where these 
are imported it is chiefly in the form of pigs and bars. The 
principal imports of this character for consumption during the 
fiscal year 1899 were 67,362,207 pounds of tin in bars, blocks, 
pigs, etc., valued at $11,843,357 ; 9,237,064 pounds of lead- 
bearing ores of all kinds, valued at 1185,872; 4,760.5 pounds 
of platinum in ingots, bars, etc., valued at $951,154 ; 21,028 
tons of nickel ore and matte, valued at 81,183,924 ; and 48,017 
tons of copper ores, valued at $608,399. 

3. Transportation facilities. Another important advantage 
possessed by manufacturers in the United States is the unusual 
facilities for transportation, particularly in the more thickly 
settled sections, where manufacturing industries predominate. 
Over eighteen thousand miles of navigable rivers not only facil- 
itate transportation directly but cause competition with railroads, 
and thus make possible the cheap marketing of products. The 
coastwise trade of the United States exceeds that of any other 
country. It includes steamship lines to and from New York, 
Boston, Philadelphia, Baltimore, and other points, and between 
several of these cities and Charleston, Richmond, Savannah, 
Jacksonville, New Orleans, Galveston, and other southern ports. 



THE MANUFACTUKim; INDUSTRIES 161 

In recent years navigation on the Great Lakes has become a 
most important factor in the internal traffic of the country. 
These lakes, with the Sault Ste. Marie and Canadian canals 
around the rapids of the St. Marys river, the St. Clair river, 
the Detroit river, and the Welland canal, allow unbroken navi- 
gation between Duluth and the eastern end of Lake Ontario, a 
distance of one thousand miles. 

The development of freight traffic over this ro-ute has been 
so great during the past decade that in 1899 it had become the 
greatest internal water way in the world, having a ton mileage 
equal to nearly 40 per cent of that of the entire railroad system 
of the United States. In 1899 more than five times as many 
vessels passed through the United States and Canadian canals 
at Sault Ste. Marie as through the Suez canal. In the value of 
manufactured products the eight states which touch the water 
ways of the lake system rank first, second, third, fifth, eighth, 
ninth, tenth, and thirteenth, the aggregate value of products 
being $7,461,225,086, or 57.4 per cent of the total for the 
United States. This route thus borders upon the great manu- 
facturing belt of the country. At its head are situated the most 
extensive mines of iron and copper and the largest hard-wood 
forests in Xortli America. The average cost of transportation on 
the Great Lakes is now about six tenths of a mill per ton mile. 

The railroad systems of the United States were constructed 
with great rapidity between 1860 and 1880, and their mileage 
now exceeds tliat of all of Europe combined. In 1899 the total 
mileage of the United States was 189,295 miles, as against 172,- 
621 in Europe, constituting 39.4 per cent of the entire railroad 
system of the Avorld. These comparative statistics are not, how- 
ever, an accurate index of the relative transportation facilities, 
because of the greater distances which separate the important 
railroad centers of the United States, and the sparsity of the 
population in many sections, compared with the density of popu- 
lation in the principal countries of Europe. Notwithstanding 
these disadvantages, the railroad systems of the United States 
are so iiighly organized and so efficiently managed that the trans- 
portation of freight by rail is cheaper than in any other country 



162 SELECTED EEADINGS IN ECONOMICS 

There have been extraordinary reductions in freight rates during 
the past thirty years. The average rates per ton mile on the 
trunk railroads of the country have declined from about 2 cents 
to 6 mills, and on two of them to 3.6 mills. In 1868 the freight 
on wheat from Chicago to New York by rail was 42.6 cents per 
bushel, compared with 11.55 cents per bushel in 1898. In 1877 
the cost of sending 100 pounds of wheat from St. Louis to New 
York was 41 cents, as compared with 22.3 cents in 1898. 

4. Freedom of interstate commerce. These exceptional trans- 
portation facilities are utilized in the interchange of products be- 
tween states and territories covering an area of 2,970,230 square 
miles of land surface, possessing a population of 75,994,575, and 
not separated by any commercial barrier. The mainland of the 
United States is the largest area in the civilized world which 
is thus unrestricted by customs, excises, or national prejudice ; 
and its population possesses, because of its great collective 
wealth, a larger consuming capacity than that of any other 
nation. Statements of this character are confirmed by statistics 
for 1900, which show that the value of agricultural products 
was $4,739,118,752, of manufactured products $13,004,400,143, 
and of mining products 11,067,605,587, —a total of 118,811,- 
124,482, which was all consumed at home except the sum of 
$1,370,763,571, representing the value of all articles of domestic 
merchandise exported in the year 1900. As a partial offset to 
this deduction there may be added the imports of merchandise 
in the same year, the value of which was $849,941,184. 

5. Freedom from tradition. Another advantage which has 
contributed to the rapid development of manufactures in the 
United States is the comparative freedom from inherited and 
over-conservative ideas. This country entered upon its indus- 
trial development unfettered by the old order of things, and 
with a tendency on the part of the people to seek the best and 
quickest way to accomplish every object. 

In all of the European countries in which manufacturing is 
an important industry, the transition from the household to the 
factory system was hampered by guilds, elaborate national and 
local restrictions, and by the natural reluctance with which a 



THE MANUFACTURING INDUSTRIES 163 

people accustomed for generations to fixed methods of work, in 
which they had acquired a large degree of skill, abandoned those 
methods for new ones. It was natural for the artisan classes to 
resist strenuously the introduction of machinery into the indus- 
tries by which they obtained their livelihood. It was natural, 
also, that in spite of the superior advantages of machine methods, 
hand processes of manufacture should still continue side by side 
with them, in many industries in which machine work had long 
since usurped the whole field in the United States. This in- 
herited and intuitive adherence to old-fashioned methods is 
illustrated by the silk industry in France, where the hand loom 
still predominates over the power loom ; and by tlie tin-plate 
industry in Wales, where, until recently, hand methods of 
production were still in force. 

In the United States the tendency of the artisan class to 
abandon the slow hand processes has been as strong as the tend- 
ency elsewhere has been to adhere to them. INIoreover, there 
has developed among the laboring classes in the United States 
a mobility such as is unknown elsewhere in the world. This has 
made it possible to attract to any point in the country the 
skilled labor required to develop any branch of industry. 

In this summary of the advantages of the United States as a 
manufacturing nation, no allusion has been made to the influ- 
ence of national legislation upon material development ; nor is 
it necessary to refer in a statistical report to the character of 
the American people, to their social, educational, and political 
environment, to their skill and efificiency as tool users, to the 
quality and [)roductivity of the machines and tools they employ, 
or to the efTective organization of business for economizing all 
productive and distributive forces. These are subjects which 
belong rather to economic study than to a statistical presen- 
tation of facts upon which the conclusions of economists are 
based. Nevertheless, there can be no complete understanding 
of the remarkable development of the United States during the 
nineteenth century unless all these things are taken into con- 
sideration. More particularly is this true in respect to the use 
of tools, machinery, and labor-saving devices of all kinds. It is 



164 SELECTED READINGS IN ECONOMICS 

the judgment of foreign commentators upon American develop- 
ment, that in the adaptation of machinery to all branches of 
industry this country displays a facility greater than is shown 
anywhere else ; that the number and variety of labor-saving 
machines employed here is larger than in any other manufac- 
turing country ; and that in many industries the subdivision of 
labor has reached a minuteness and a degree of perfection not 
elsewhere equaled.^ 

At the census of 1880 the system of interchangeable mechan- 
ism, so called, which is distinctively and peculiarly American 
in its origin, was made the subject of a special and exhaustive 
report compiled under the direction of Professor W. P. Trow- 
bridge of New York. In transmitting this report Professor 
Trowbridge said: 

The general growth of the " interchangeable system" in manufacturing 
has had an influence in the development of manufacturings agricultural, 
and other industries which but few have hitherto appreciated. It may not 
be too much to say that, in some respects, this system has been one of the 
chief influences in the rapid increase in the national wealth. Two of the 
great industries which constitute the basis of this wealth — agTiculture 
and manufactures — depend now largely upon the existence of this remark- 
able feature in manufacturing, which has reached its highest development 
in this country. The growth of the system is due to the inventive char- 
acteristics of our people and their peculiar habit of seeking the best and 
most simple mechanical methods of accomplishing results by machinery, 
untrammeled by traditions or hereditary habits and customs. 

1 The Journal of the British Board of Trade for December 20, 1900, prints a 
report by Mr. Seymour Bell, British commercial agent at Washington, D.C., 
on the use of labor-saving devices in American factories. Mr. Bell states that 
"any one visiting American factories cannot but be struck by three things 
which are very conspicuous. They are : (1) the way in which machinery is used, 
and all sorts of devices are employed in order to save, wherever possible, manual 
labor ; (2) the division of labor ; and (3) the methods employed for handling 
large quantities of material. Probably in no country in the world is the prin- 
ciple of division of labor carried out to a greater extent, or with greater success, 
than it is in the United States. That the results obtained justify the theory is 
too evident everywhere to be disputed. It is only necessary to visit, for 
instance, a musical-instrument factory, and see the thousands of instruments 
that are being made, and the millions of small pieces being handled which 
are necessary to complete them ; or, again, a boot factory where some four 
hundred hands are turning out as many as three thousand pairs of boots and 
shoes a day." 



THE MANUFACTIKING INDL'STKIES 105 

2. The Localization of Industry' 

The causes of localization. Seven of the various advantages 
which give rise to the localization of industries may be stated 
as follows : (1) nearness, to materials; (2) nearness to markets; 
(3) water power; (4) a favorable climate ; (5) a supply of labor; 
(6) capital available for investment in manufactures ; (7) the 
momentum of an early start. 

All of these advantages except the last operate to prescribe 
the broad area within which an industry is economically pos- 
sible. The exact point within this area at which it shall be 
actual — i.e. the center of localization — is usually the result 
of a more or less chance decision made in the early days of the 
region's settlement by some pioneer in the industry. Once suc- 
cessfully started, the manufacture gains a n)omentum which 
enables it to persist in the original locality long after the 
earlier general advantages it possessed have disappeared. The 
industries shown in Tables^ LXXVII-C'XXXVI were selected 
partly because their localization illustrates the advantages here 
mentioned. It should be noticed, however, that in almost every 
case several of the above causes may be assigned, the actual 
localization being thus often a resultant of forces which act in 
nearly opposite directions. 

1. Nearness to materials. The localization of several of the 
industries included in the above tables illustrates this ad- 
vantage, — the paper industry near the spruce and poplar 
forests; the tanning industry near the chief tanning materials; 
slaughtering and meat packing near the stock-raising centers ; 
the manufacture of agricultural implements near the great haid- 
wood forests and the iron-producing centers ; the pottery in- 
dustry near its clay ; the recent growth of cotton manufacturing 
near the cotton fields ; and the beginnings of shoe manufactur- 
ing in Massachusetts near the supply of leather. Other strik- 
ing illustrations of the effect of materials upon localization arc 

^ From Twelfth Census, Report on Manufactures, I, ccx-ocxiv. 
- The census presents a number of tables which it is impossible to reproduce 
here. — Ed. 



166 SELECTED READINGS IN ECONOMICS 

shown in Tables CXXXVII and CXXXVIII, from which it 
appears that, measured by the value of products, 64.4 per cent 
of the oyster canning and preserving was carried on in Balti- 
more ; 48.1 per cent of the coke was manufactured in the 
Connellsville district; 22.7 per cent of the chewing and smok- 
ing tobacco and snuff was manufactured in St. Louis ; and 15 
per cent of the fruit and vegetable canning and preserving- 
was done in Baltimore. 

Fuel is regarded, for census purposes, as a material of manu- 
facture, and the influence of its supply is very marked in the 
localization of the glass industry near the natural-gas wells, 
and in the iron industry in Pennsylvania and Alabama. 

2. Nearness to markets. This is an important factor in the 
localization of all industries, its influence upon the localization 
of manufacturing in general being especially apparent. Nearly 
48 per cent of the manufacturing of. the country is in Massa- 
chusetts, Connecticut, Rhode Island, New York, New Jersey, 
and Pennsylvania, — not so much because there is better water 
power or more abundant material for manufactures in these 
states, but very largely because the greatest population was 
there when the manufacturing developments of the country 
began. The influence of the market in causing a migration of 
manufacturing in general may be observed by comparing the 
movement of the center of manufactures and of the center 
of population since 1850, as shown elsewhere. The center of 
manufactures has moved steadily westward, following roughly 
the movement of the center of population. 

Eight of the above fifteen selected industries are localized 
east of the Alleghenies chiefly because they became established 
in this section at a time when it was the only important market 
in the country. In certain of these industries the influence of 
the market upon the localization has been especially marked, i.e. 
the iron and steel industry in Illinois, the manufacture of agri- 
cultural implements, the paper and pulp manufacture, and the 
jewelry and silk industries. 

Nearness to materials and nearness to markets, in so far as 
these expressions are used with reference to an effect upon 



THE MANUFACTURING INDUSTRIES 167 

localization, mean more than mere geographical distance. They 
include the general accessibility to materials or markets, affected 
as this is by the supply or lack of good and cheap means of 
communication. Water ways have thus had a tremendous influ- 
ence upon the localization of industries, for they have allowed 
localities through which they passed to make an early start in 
manufacturing, and, by the momentum thus acquired, to retain 
their prominence in many cases, even after the building of 
railroads has removed the special advantages which they at 
first possessed. 

It is evident, moreover, that the importance of the two advan- 
tages just explained varies greatly among the several industries, 
according as their products are easily and cheaply transportable 
or are transported only with great difficulty and at a great ex- 
pense. In all industries where the jjroduct is not transportable, 
such, for example, as the construction of houses, the market 
controls the localization absolutely. It is plain, also, that the 
power of materials and market over industry is less, just in 
proportion as the materials and products are more easily and 
more cheaply shipped. From the manufacturer's standpoint it 
is always a counting of the costs of shipment. If these are 
heavy, the industry tends to locate where the amount of trans- 
portation will be least, but if they are light, the influence of 
materials and market is so slight that it often disappears alto- 
gether. The words " heavy " and " light," as used in this con- 
nection, are not to be understood in an absolute sense, but 
relative to the value of the material or product transported. A 
cheap and heavy raw material, such as clay, will be carried only 
a very short distance. Transportation charges, after a few hun- 
dred miles, would constitute too large a part of the cost of 
manufacture. But an equal weight of this same clay, after its 
value has been trebled by being converted into pottery, might 
be carried a long distance before the shipping costs would 
become prohibitory. 

The industries mentioned above as influenced largely by their 
market and the source of materials used, — paper, iron and steel, 
slaughtering, pottery, and leather, — are those in which the 



168 SELECTED EEADINGS IN ECONOMICS 

materials or products have a great weight or bulk in comparison 
with their value, and in which, therefore, freight charges are a 
very important element of costs. 

3. Water power. This has been in the past a very important 
advantage, but to-day its influence upon localization of indus- 
tries is not verjr apparent. Naturally this influence was great- 
est before the days of steam. All industries requiring power 
grouped themselves along those water ways which had a good 
natural fall. This early impetus, combined with forces to be 
described later, has tended to perpetuate such industries in their 
original locations, even when steam has become more important 
as a source of power than water. 

It is interesting in this connection to compare the manufac- 
ture of cotton goods with the manufacture of shoes. Power has 
been applied to some branches of the cotton manufacture for 
more than a hundred years, while shoe manufacturing has been 
a power industry less than half that time. Largely as a result 
of this fact water supplies 31 per cent of the power used in 
the cotton industry to-day and but 4.6 per cent of that used 
in the manufacture of shoes ; that is to say, the localization 
of both industries began in the early days, but the manufac- 
ture of shoes, being for years a hand industry, was independent 
of water power, while the cotton manufacture, of necessity, 
sought the water ways. When the necessity for power in the 
shoe manufacture arose, the industry was too thoroughly estab- 
lished away from the sources of water power, and recourse 
was had to steam. Water power has been an important factor 
in the localization of three of the other industries specified 
above, — silk goods, hosiery and knit goods, and the pulp 
manufacture. 

4. A favorable climate. This has also an influence which is 
discernible in the localization of industries. The influence of a 
moist climate, which is also even throughout the day, upon 
cotton spinning in New Bedford and Fall River, Massachusetts, 
has been mentioned above. More often, however, the advantage 
of a j^avorable climate makes itself felt through its invigorating 
effect on labor. 



THE MAXIFACTUKING INDUSTRIES IGO 

5. A supplji of labor. Two other advantages must be men- 
tioned, for there are times when they have considerable weight. 
These are the supply of labor and the supply of capital and 
credit facilities. The "supply of labor" is something far from 
mobile. It is very human, with all the attachments of home 
and friends. It can be easily lured into a new industry which 
is established '' at home " or near by, but the wages paid must 
be considerably greater to attract it into other sections. Manu- 
facturing industries tend, therefore, to become established in a 
section where there is a good supply of labor. The New Eng- 
land towns have been preeminently of this type. All about 
tliem were farms which had readied the point of exhaustion, and 
could therefore employ profitably only a small part of the rising 
generation. The surplus labor thus created gravitated natur- 
ally to the nearest town in search of employment, and the early 
development of numerous manufactures was thus made easy. 
For a similar reason tliere can be no extensive manufacture in 
those parts of the West where the increasing population is mostly 
absorbed in agriculture, wdiich is still incompletely developed. 

6. A supjjly of capital. It is almost equally important to 
have a supply of local capital. Although most large enterprises 
are now financed from the great financial centers, the plants are 
located usually in places which liave already become industrial 
centers in a smaller way through the efforts of the people there, 
and by means of their money. The cotton mills which are 
springing up through the South just now illustrate the tend- 
ency of a town to own itself in the early stages of its indus- 
trial life, and Fall River affords a most remarkable illustration 
of the perseverance of this tendency. A prosperous town, there- 
fore, where the people are " making money," is, in so far, a 
favorable locality for the establisliment of manufacturing indus- 
tries of some sort. Outside capital will undoubtedly be solicited, 
but it will be obtained more easily and more surely after the 
people themselves " have taken largely of the stock." Banking 
facilities exert a similar influence, making the community's cap- 
ital more available for investment than it would otherwise be. 
All of these considerations have operated to favor the early 



170 SELECTED READINGS IN ECONOMICS 

development of manufacturing centers in New England and 
the Middle Atlantic States, agriculture absorbing a large share 
of the available local capital in the Southern and Western states. 
One of the causes which led to the establishment of the cotton 
manufacture in New Bedford about 1850 was the supply of 
local capital set free about that time by the decline in the 
whaling industry. 

7. The 7nomentum of an early start. The various advantages 
which have been described thus far can be expressed in dollars 
and cents. The places possessing these advantages attract man- 
ufacturers on account of the comparatively low cost there of 
producing and marketing, goods. But these advantages in 
almost all cases account for localization only in its broader 
sense. They prescribe an industry's possible area, but they fail 
to explain the most marked form of localization, — that within 
a single city or town, or group of cities and towns. 

Somewhere within the possible area — made such because of 
the advantages just described — an enterprising man started the 
pioneer establishment of a certain industry. Why was this place 
chosen rather than any other within the possible area ? Or why 
was this industry chosen rather than any other for which this 
place was suited? This is the first problem, and the second 
follows naturally: Why, after the first factory had become es- 
tablished, was it to the advantage of competitors to choose the 
same spot for their establishments, rather than other localities 
within the possible area? The solution of the first problem in 
the case of any industry is to be found by reference to its early 
history in this countr3^ 

In most cases it Avill be found that the original establishment 
of an industry in a locality was largely a matter of chance. 
The shoe industry in Lynn, Massachusetts, is a case in point. 
In the early colonial daj^s this settlement had its quota of cob- 
blers, who made as well as repaired the shoes for the region 
thereabout, but did not attempt a broader market. In 1750, 
however, John Adams Dagyr, a Welshman and a skilled shoe- 
maker, settled in Lynn and began to teach his apprentices the 
art of fine shoemakino-. It soon became known that shoes were 



THE iMANUFACTURlNG INDUSTRIES 171 

being made in Lynn nearly as good as the best made abroad, 
and as early as 1764 Dagyr was spoken of in a Boston news- 
paper as '• the celebrated shoemaker of Essex." Had this man 
settled in Roxbury, Massachusetts, rather than Lynn, the bias 
toward shoe manufacturing might have become established in 
that quarter, and Roxbury instead of Lynn might to-day be one 
of the three great shoe* centers of the United States. 

The nature of many a city's industry has been shaped in just 
this way in the early days of its history by the decision of one 
man. Instances of this have been cited in the preceding para- 
graphs, in connection with the localization of collars and cuffs, 
hosiery and knit goods, jewelry, gloves, and fur hats. 

The decision of the pioneer in an industry at a given point 
rests on various grounds. He establishes usually an industry 
with which he is familiar because of experience obtained else- 
where. Several of the above-selected industries have been estab- 
lished in their respective localities by the emigration from 
Europe of individual skilled workmen or groups of skilled 
workmen. The town where such a man chances to settle is 
taken for a location of the industry, in most cases without much 
questioning whether or not it is better adapted for it than any 
other town. But if he searches for a suitable place, his chance 
acquaintance with one locality, or the offer of a friend to assist 
him if he establishes there, often influences his decision at the 
expense of another and perhaps more suitable locality where he 
has never visited, or where no acquaintance appeared to offer 
inducements. In many instances towns offer inducements to 
manufacturers, such as exemption from taxation for a period of 
years, and sucli efforts have often been successful in building 
up an entirely new industry in the town. 

But if the industry is to be perpetuated and to increase in 
the locality, the original establishment must succeed, for it is 
the influence of its success which causes other establishments 
to spring up around it. In the early history of every industry 
numerous enterprises fail, not so much because of the unfitness 
of the locality chosen, as because of the unfitness of the man 
who attempts to carry on the industry at that point. 



172 SELECTED READINGS IN ECONOMICS 

The habit of industrial imitation. It is only' after the first 
enterprise has succeeded in any locality that the real localizing 
process begins. The mainspring of this process is the habit of 
industrial imitation, — a habit as powerful as it is universal, and 
so important in this connection that it warrants a somewhat 
closer analysis. 

It has been shown above that one of tfie normal requisites of 
an industrial locality is a good supply of local labor and local 
capital. Suppose the enterprising man establishes himself in 
such a community and succeeds there. His success proves that 
the economic conditions are favorable, — that he is within the 
possible area of that industr3^ But it- does more; it creates a 
local bias toward this particular industry. This bias affects all 
three classes necessary to its expansion, — entrepreneurs, capi- 
talists, and laborers. 

In the first place entrepreneurs naturally choose the existing 
industry rather than establish a new one. On the assumption 
of a prosperous and growing town, there is continually arising 
a class of enterprising men who wish to embark in manufac- 
turing for themselves, and they naturally choose an industry 
with which they are familiar, — one which they have actually 
seen succeed. It requires courage to be an industrial pioneer, — 
more courage, in fact, than most men possess. They have read, 
perhaps, of much larger profits being made in branches of man- 
ufacturing not carried on in their neighborhood ; they may have 
visited towns in another part of the country where some such 
industry has been very successful, and they are tempted to 
establish this industry in their town rather than to imitate the 
establishment which has been operating there successfully. The 
chances are great, however, that they will resist the temptation 
of larger profits, in favor of what they regard as surer profits, 
and will choose the local industry. The other industry may be 
just as safe, but the probability of success if they follow the 
beaten path has been emphasized to them each day as they have 
watched the smoking chimney of the local factory, and have 
noticed the rise of the proprietor from moderate circumstances 
to comparative affluence. Their choice of this industry becomes, 



THE MANUFACTURING INDUSTRIES 173 

therefore, almost inevitable. Moreover, it is probable that the 
men who thus launch out for themselves have been employees 
or foremen in the local factor}'. They are relatives, perhaps, of 
the proprietor, and are familiar with all the details of this in- 
dustry, while in any other they would have all to learn. This 
last feature has been illustrated in fully half of the industries 
specified above. 

In the second place, the capital needed to finance the new 
establishment — in addition to that supplied by the new entre- 
preneur himself — is much more easily obtained if the new 
establishment is to produce the same line of goods as the one 
already in existence. If a loan is desired for the establishment 
of an outside and less familiar industry, there is naturally a 
raising of the interest rate as a means of insurance ; or the 
stock, if offered for sale, will for the same reason sell at a 
lower figure.^ 

In the third place, the best grade of local labor prefers to have 
employment in an industry which seems to offer a future rather 
than in one which seems in the nature of an experiment. This 
influence is comparatively slight, however, for all ordinary labor 
takes such employment as is offered without much questioning. 

Economic advantages of specialized centers. All the above de- 
cisions — the decision of the pioneer in the industry, and the 
decisions of the few who follow immediately in his steps — 
seem to be made with but little consideration of the economic 
advantages which the locality chosen may possess for carrying 
♦ on the industry in question, — i.e. the possibility of producing 
cheaper at this point than elsewhere, or being better able there to 
market the products. Very quickly, however, certain decided 
economic advantages emerge. Workmen, skilled in the spe- 
cialty for which the center begins to be known, flock there and 
wait their chance " to be taken on at one of the mills." In 

^ The opposition of the manufacturer or the manufactures already established 
in the industry must, however, be counted on in many cases, especially if the 
products made are for sale in a comparatively limited market. As far as such 
opposition seems likely to develop, the advantage above described is counter- 
acted, local investors becoming doubtful regarding the safety of their money 
under such circumstances. 



174 SELECTED EEADINGS IN ECONOMICS 

many cases an immigration of skilled labor from corresponding 
centers abroad sets in. East Liverpool, Ohio, was at one time 
chiefly an English town as the result of such immigration. A 
pool of specially skilled labor is thus formed, which acts as a 
powerful inducement to the expansion of the industry from 
within, while at the same time it draws prospective manufac- 
turers to this center from without. 

The use of machinery has, however, tended to lessen the 
importance of a specially skilled labor supply. In proportion 
as an industry becomes automatic its localization becomes inde- 
pendent of its supply of special labor. It is interesting to note 
in this connection that six of the fifteen industries shown in 
Tables LXXVII to CXXXVI, on account of their marked local- 
ization, are industries in which hand work constituted for many 
years the most important part of the operations. In some in- 
stances, such as the glove, collar, and hat manufacturing, hand 
work is still an important factor, while in the manufacture of 
boots and shoes hand work persisted to a large extent as late 
as 1870. 

In a specialized community of this sort the contact of work- 
men and employers with each other results in a mutual improve- 
ment in manufacturing methods. Laborers " talk shop " more 
or less when not at work, and the devices adopted in one estab- 
lishment for making the work easier are soon adopted in all. 
Similarly, it is easy for a manufacturer in such a place to note 
the experiments with patented improvements carried on in 
another establishment, and to adopt such improvements just 
as soon as their value is demonstrated, by paying the royalty 
demanded. 

In the course of time another advantage arises in such a 
specialized center — the possibility of subdividing the processes 
of manufacture among several establishments, — a division of 
labor among employers. In the Massachusetts shoe cities, for 
example, there are establishments which make only uppers, and 
others which make only " findings " (counters, shanks, heel stif- 
feners, etc.). Soon, also, subsidiary industries spring up for the 
supply of the special machinery and tools required. As a result, 



THE MANUFACTURING INDUSTRIES 17') 

new and up-to-date tools and machinery may be had in such 
centers with the least possible delay, and existing machinery 
may be kept continually in repair. 

Thus a town's specialization increases its supply of special- 
ized labor and specialized machinery. These in turn react to 
increase the specialization of the town. Success breeds success 
in an almost geometrical ratio. Cause and effect propel each 
other in a continually expanding circle, the self-created local 
advantages becoming in time so powerful that they entirely neu- 
tralize the greater general advantages of location which other 
localities may have come to possess. 

Coyichision. In conclusion it should be noted that in pro- 
portion as a country develops industrially and upon a larger 
scale ; in proportion, moreover, as there is a mobility of labor 
and freedom from the influence of inherited and over-conserva- 
tive ideas, the localization of industries tends to be governed 
increasingly by purely economic considerations and less by the 
fortuitous considerations which accounted in many cases for 
localization in earlier years. The influence of industrial combi- 
nation in this direction has already become marked. The system 
of uniform bookkeeping, introduced in man}- such combinations, 
enables managers to know accurately the comparative advantages 
of several localities for the industry in question, and to redis- 
tribute their production accordingly. 

3, The Geographical Distribution of Manufactures ^ 

An interesting feature of the manufacturing development of 
the United States is brought out by grouping the states along 
geographic lines. 

For such a grouping the twelfth census has employed the 
old and familiar divisions. The New England States are com- 
monly regarded as a geographic unit, ordinary commercial use 
associating these six states as a distinct group governed by con- 
ditions peculiar to themselves. The same is true of the Middle 
States, although there is less certainty in the public mind as to 

1 From Twelfth Census, Report on Manufactures, I, clxxi-clxxviii. 



176 SELECTED READINGS IN ECONOMICS 

the states which actually constitute this group. The Southern 
States comprise another distinct geographic unit, and a more 
accurate conception of their industrial progress is obtained by 
associating them in one group than by dividing them into the 
South Atlantic and South Central groups. The Central States 
in the Middle West, often called the prairie states, are a homo- 
geneous territory whose industrial development has been nearly 
uniform. The same is true of the Western States, known as the 
Rocky Mountain group, most of which have advanced into 
statehood within a comparatively recent period. Finally there 
are the three states comprising the Pacific group, whose indus- 
trial development has been governed by conditions altogether 
different from those prevailing elsewhere.^ 

The actual increase between 1860 and 1870 was somewhat 
less, and the increase between 1870 and 1880 somewhat greater, 
than the figures indicate, since the values reported in 1870 
were based upon a paper currency, while those of 1860 and 
1880 were gold values. 

1. The Middle States. The tables show that during the entire 
half century the Middle States occupied the foremost position 
in manufactures. In 1850 the gross value of products of these 
states was 1472,876,861, constituting 46.4 per cent, or very 
nearly one half, of the gross value of products for the entire 
Union. In 1900 the value of products had grown to $4,957,- 
874,935, but the proportion was only 38 per cent of the total 
for the United States. The relative proportion produced by the 
Middle States has thus undergone but slight variation in the 
half century, the growth of these states having been almost on an 
equality with the growth of the entire Union. This is due to the 
continuous advance of the great states of New York and Penn- 
sylvania, in which are situated two of the largest manufacturing 
centers, and to the increasing number of small manufactur- 
ing cities, whose growth has been steady and uninterrupted. 

2. The New England States. In 1850 the New England 
States returned a product of 1283,372,747 ; in 1900 the value 

1 Then follow tables which can be reproduced only in part. The essential 
facts are shown in the table on opposite page. — Ed. 



Distribution of Manufactures by G-eographical Divisions 







Date 


Number 




Value of Prod- 


— 




ItlVISION.S 


OF 

Cen- 

Sl'S 


OK 

Estab- 
lishments 


Capital 


ucts, INCLUDING 
Custom Work 
AND Repairing 








riooo 


512,734 


§9,846,628,564 


$13,039,279,566 


^~ 






1890 


355,415 


6,525,156,486 


9,372,437,283 




1 


United States . . . 


1880 
' 1870 


253,852 


2,790,272,606 


5,369,579,191 


n 






252,148 


2,118,208,769 


4,232,325,442 






1860 


140,433 


1,009,855,715 


1,885,861,676 








J850 


123,025 


533,245,351 


1,019,106,616 


, 




flOOO 


57,941 


1,594,142,001 


1,875,792,081 


' 






1890 


48,392 


1,176,078,498 


1,498,797,507 




2 


New England States 


1880 


31,581 


624,228,061 


1,106,158,303 


VI 






' 1870 


32,352 


489,066.032 


1,009,116,772 






1860 


20,071 


257,477,783 


468,599,287 








1850 


22,487 


165,695,259 


283,372,747 


^ 






'1900 


160,374 


3,951,914,758 


4,957,874,935 


- 






1890 


125,187 


2,554,437,860 


3,646,692,021 




3 


Middle States . . . 


1880 
"^1870 


89,603 


1,174,934,893 


2,219,072,594 


■3 






87,606 


905,722,631 


1,769,003,895 






1860 


53,287 


435,061,964 


802,338,392 








,1850 


54,024 


235,586,443 


472,876,861 








ri900 


84,256 


953,850,192 


1,184,398,684 


•^ 






1890 


46,455 


510,776,260 


706,844,392 




4 


Southern States . . 


1880 
■ 1870 


36,938 


192,949,654 


338,791,898 


■4 






38,759 


139,160,713 


277,720,637 






1860 


24,081 


116,231,764 


193,462,521 








,.1850 


20,505 


67,104,157 


100,872,071 


• 






'1900 


166,454 


2,750,223.234 


4,000,817,987 








1890 


113,050 


1,940,088,802 


2,945.240,950 




5 


Central States . . . 


1880 
1870 


81,999 


699,587,944 


1,502,637,308 


-5 






84,392 


516,709,757 


1,055,419,013 






1860 


32,884 


172,604,454 


341,710,554 








1850 


24,921 


62,896,995 


146,348,545 . 








-1900 


23,950 


289,889,077 


555,482,428 


1 






1890 


11,332 


130,380,451 


278,199,781 




6 


Western States . . 


1880 


6,505 


27,813,717 


72.518,749 


^6 






1870 


3,817 


20,950,91 1 


44,742,130 






1860 


681 


3,803,216 


7,114,012 








J850 


37 


112,700 


540,230 , 








ri900 


19,301 


291,467,178 


435,670,399 ^ 








1890 


10,989 


213,288,888 


29(!,604,192 




7 


Pacific States . . . . 


1880 


7,226 


70,758,337 


130,400,339 


■7 






1870 


5,222 


45,998,725 


76,322,995 






1860 


8,829 


24,676,534 


72,636,910 








J850 


1,056 


1,849,797 


15,099,162 J 




8 


Outlying districts . 


[1900 
11890 


458 
10 


15,142,064 
105,727 


29,243,052 ' ) 
58,440 1 ^ 



177 



178 SELECTED READINGS IN ECONOMICS 

of products had grown to $1,875,792,081, an increase of over 
sixfold. Notwithstanding this enormous increase, the per cent 
of the total value of manufactured products of the New England 
States to that reported for the whole United States has decreased 
continuously from 27.8 to 14.4. These states, covering an area 
of 66,465 square miles, or only 2.2 per cent of the area of the 
mainland of the United States, exclusive of Alaska, do not grow 
sufficient food on their rather barren soil to supply their own 
population, and possess no advantages in the way of local 
supplies of raw materials. Under these conditions the steady 
advance of their manufacturing industries is indicative of the 
enterprise of their citizens, and of the unusual extent to which 
their capital has been invested and reinvested in manufactures. 
The only natural advantages of New England are an abundance 
of water power, conveniently located for manufacturing purposes, 
and a seacoast upon which fine harbors abound, greatly facilitat- 
ing the interchange of products. These natural conditions have 
assisted in building up a chain of manufacturing cities extend- 
ing along the seacoast from Biddeford, in Maine, to Bridgeport 
in Connecticut, while the more important inland manufacturing 
cities, which owe their development to their excellent water 
power, are mostly located at short distances from the coast. 

Since the earlier days the industries of New England have 
undergone a striking evolution, involving a gradual shifting of 
the manufacture of the heavier iron and steel products to points 
nearer the raw materials and fuel supplies ; but all the New 
England States have clung tenaciously and successfully to the 
manufactures which originally gave them their chief prominence, 
namely, the textile industries and the manufacture of the 
machinery required in these industries. Thus New England 
makes the greater part of the spindles and looms used in the 
cotton manufacture of the country, and almost as great a pro- 
portion of the machinery for wool manufacture. Its preeminence 
extends to many other branches of machinery, but more particu- 
larly the making of fine tools and delicate instruments. 

3. The Central States. The most striking phenomenon of the 
manufacturing development of the United States in the half 



THE MAMFACn K1X(; JNDUSTKIES 179 

century has been the iaj)id advance of the Central States from 
a comparatively insignificant position to second place among 
the geographic groups. In 1850 the states of Illinois, Indiana, 
and Ohio were occupied chiefly witli agricultural pursuits, the 
value of their manufactured products aggregating butfS>146,348,- 
545, or 14.4 per cent of the total value of products. In 1900 
they reported products valued at %'4,000, 817,987, comprising 
30.7 per cent of the total value of products of the whole country, 
as contrasted with 38 per cent in the Middle States, which in 
1850 produced 46.4 per cent of the total value. Nowhere else 
in the world has there been so rapid a transformation of the 
occupations of the population. A great variety of causes has 
contributed to this development and stimulated it. The agri- 
cultural resources of the Central States are unsurpassed, their 
mineral deposits are hardly inferior to those of any other section, 
their transportation facilities by rivers, by the Great Lakes, and 
more recently by railroads have rapidly developed. Very early 
in the history of these commonwealths their citizens began to 
establish manufacturing plants, in order to use their own mate- 
rials and to supply their own needs. These establishments were 
often on a very large scale, and modern in equipment and con- 
struction, utilizing the latest improvements in machinery and 
methods. Supplies for the development of the vast agricultural 
districts within or contiguous to their boundaries have from the 
first been produced largely by these establishments. This has 
been especially true in the manufacture of agricultural imple- 
ments of every description, so important in the development of 
tlie West, and in the production of the wagons, carriages, and 
tools required on farms. Thus the Central States have been to 
a large extent self-sustaining in their development, encouraging 
their manufactures, which, in turn, have nourished and developed 
their agriculture and tlieir mines. 

4. The Southern States. The industrial development of the 
South, during the decade just closed, has been along lines so 
different from those prevailing in otlier parts of the country that 
it calls for special and more extended treatment. In tliis group 
of states, during the census year of 1900, there were 84,256 



180 SELECTEJ} EEADINGS IN ECONOMICS 

establishments engaged in manufacturing and mechanical indus- 
tries, with a capital amounting to '1953,850,192, giving employ- 
ment to 656,169 wage earners, or 2.9 per cent of the total 
population of that section, and yielding products valued at 
$1,181,398,68-1:, or 9.1 per cent of the total for the country. In 
1850 the Southern States produced 9.9 per cent of the manu- 
factured products of the United States. 

During the decade ending with 1870 only a very small pro- 
portion of the increase of 124.4 per cent in the manufactured 
j)roducts of the United States was reported by the Southern 
States. This is accounted for by the fact that the South was 
struggling with debts, and with the general wreck and ruin 
caused by the Civil War. It had been unable to regain the 
fortunes which were lost in that struggle, and was without 
credit. Its railroad lines were lacking in system and its labor 
was disorganized. In 1880 the products of this section formed 
6.3 per cent of the total value of the products of the countr}^ 
Since that time the proportion has steadily increased, until at 
the census of 1900 it reached 9.1 per cent, eight tenths of one 
per cent below the proportion in 1850. During the half cen- 
tury the increase in value of products was nearly twelvefold. 
The last two decades brought to the South not only capital and 
improved machinery but skilled workmen as well, and firmly 
established the cotton mill as a factor in the development 
of the South. 

The oldest and most important industries in this section find 
their raw material at hand in the products of the farm, the 
forest, and the mine. This points to an agricultural and mining 
development rather than to a distinctively manufacturing one. 
Cotton is ginned ; wheat, corn, and rice milled ; sugar cane 
crushed ; turpentine and rosin distilled ; timber cut ; and iron 
ore smelted. The processes involved in these crude manufac- 
tures are simple and require no special skill. Even the farm 
laborer is familiar with them, and passes without difficulty 
from the field to the mill. Until recently, therefore, the manu- 
factures of the South have been confined principally to such 
industries. 



THE MANUFACTURING INDUSTRIES 181 

In manufacturing processes proper a higher degree of skill 
and a greater differentiation of labor are required, and profits 
depend less upon accessibility and cheapness of material than 
on technical training. Capital was attracted to this section by 
the abundance of material and the cheapness of labor, and the 
first true manufacturing processes were carried on as carefully 
conducted experimental enterprises. The recent increase in 
cotton mills, cotton-seed oil and petroleum refineries, sugar 
factories, and iron and steel works shows that a considerable 
advance has now been made in manufacturing proper. 

The distribution of the increase in the population of the 
Southern States indicates in a marked manner the development 
of manufacturing and its draft upon labor which w^as formerly 
engaged in agriculture. During the decade the increase of the 
South in total population was 24.4 per cent ; in the rural popu- 
lation, 18.3 per cent ; in the population of cities of four thou- 
sand and over, 38.4 per cent ; and in incorporated towns of less 
than four thousand inhabitants, 52.8 per cent, showing a general 
tendency toward concentration in towns and cities. A consid- 
erable amount of skilled white labor avoids competition with 
cheap labor by bringing its intelligence to the mills. During 
the last two decades all these influences have concentrated them- 
selves upon cotton manufacture, making it the most important 
manufacturing industry in the South. 

During the census year there were in the Southern States 401 
establishments engaged in cotton manufacturing, wuth a capital 
of ^124,596,874, 97,559 wage earners, and products valued at 
$95,002,059. At the census of 1890 these states had 239 cotton 
mills, with a capital of •'S'53,827,303, 36,415 wage earners, and 
products to the value of $41,513,711. This is an increase of 
$53,488,348, or 128.8 per cent, in value of products. During 
the decades from 1870 to 1900 the rates of increase in the value 
of the cotton-mill products of the Southern States were 43.8, 
153.8, and 128.8 per cent respectively, as against 5.8, 28.9, 
and 7.8 per cent in all other states. In the New England States 
the increases during the same decades were 14.7, 26.3, and 
5.8 per cent respectively. During the last decade the increase 



182 SELECTED READINGS IN ECONOMICS 

in the value of all cotton-mill products in the United States was 
171,218,596 ; of this increase, $53,488,348, or 75.1 per cent, 
was shown by the Southern States. 

The number of spindles in southern mills has not increased 
in so great a ratio as the value of products. The total increase 
during the decade in the number of spindles in the United States 
was 4,862,849, of which 2,745,988, or 56.5 per cent, were in 
southern mills. During the last three decades the rates of 
increase in the number of spindles in southern mills were 65.3, 
186.7, and 176.7 per cent, respectively, as against 48.6, 24.9, 
and 16.8 per cent in all other states. In the Southern States 
the average consumption of cotton per spindle was 164.4 pounds, 
as against 72.9 pounds in the New England States; the value 
of products per spindle was $22.09 in the Southern States, as 
against $14.91 in New England. It thus appears that from a 
pound of raw cotton the southern mills produced a product 
valued at 13.4 cents, while frojn the same quantity of raw 
material the New England mills obtained a product valued at 
20.4 cents. The difference in the output per spindle of the two 
sections was caused by the difference in the grade of goods pro- 
duced by the mills. The coarser grades of goods manufactured 
by southern mills require less twisting in their manufacture, 
making the spindle consumption of cotton greater. The longer 
hours of employment prevailing in the Southern States also 
increase the consumption per spindle ; for example, in Massa- 
chusetts the labor day is ten hours, while in Georgia and the 
Carolinas it is eleven. 

The distinctively southern industries, such as cotton ginning, 
rice milling, molasses making, sugar refining, and turpentine 
distilling, showed a decided and vigorous growth during the 
last decade. In all of these industries except turpentine distill- 
ing and flour and grist milling the production fluctuates with 
the crops immediately supplying them, and thus indicates the 
agricultural prosperity of the section. 

The lumber and timber industry is increasing more rapidly in 
the South than in any other part of the country. In 1900 there 
were 13,777 establishments, with a capital of $179,319,952, and 



THE MANUFACTURING INDUSTRIES 183 

118,491 wage earners. The value of products increased from 
$28,156,671 in 1870, to $1 85,727,890 in 1900, or 559.6 per cent. 
The increases for the three decades were 35.4, 134, and 108.2 
per cent, respectively. During the last decade, the Southern 
States showed an increase of $96,520,165, or 74.9 per cent of 
the increase of $128,875,602 for the United States. 

The lumber industry is fairly well distributed throughout the 
South, the five leading states being Arkansas, Tennessee, Louisi- 
ana, Texas, and Mississippi, which rank in the order named. 
Arkansas easily leads, with products valued at $23,959,983. 

In 1900, 1169 tobacco factories reported $36,773,751 capital, 
37,307 wage earners, and products valued at $78,091,650. A 
comparison with 1890 is not practicable, as three Southern 
States were then grouped with " all other states," and cannot be 
separated. In 1880 the value of products of the tobacco manu- 
facture in the South was $25,938,212; in 1900 it was 
$78,091,650, shoAving an increase of $52,153,438, or 201.1 
per cent. This increase was 31.7 per cent of the increase of 
$164,406,380 for the United States. The Southern States lead- 
ing in tobacco manufacture were Kentucky, Virginia, North 
Carolina, and Florida, which rank in that order. Kentucky led 
in the manufacture of chewing and smoking tobacco and snuff, 
with North Carolina a close second ; Florida, in the manufacture 
of cigars and cigarettes ; and Virginia, in the stemming and 
rehandling of tobacco. 

In 1900 the Southern States reported all but six of the estab- 
lishments engaged in the manufacture of cotton-seed oil and 
cake. There were 369 establishments in the United States, with 
$34,451,461 capital, 11,007 wage earners, and products valued 
at $58,726,632. In 1890 there were 119 cotton-seed-oil mills, 
with $12,808,996 capital, 5906 wage earners, and products 
valued at $19,335,947, showing an increase in value of prod- 
ucts of $39,390,685, or 203.7 per cent. 

5. The Western States. The manufacturing development of 
the Rocky Mountain group of states has been very marked. In 
1850 most of this vast area of fertile lands, so rich in mineral 
deposits, was quite unused, and census enumerators found there 



184 SELECTED EEADINGS IN ECONOMICS 

nothing in the way of manufactures proper, although $540,230 
was reported as the value of products of the neighborhood 
industries. During the last half century the manufacturing 
operations most closely connected with mining found their way 
into this section, and the smelting and refining of ores consti- 
tuted the bulk of the $555,482,428 reported in 1900 as the 
value of the products of these states, which produced 4.3 per 
cent of the total value of products of the United States. 

6. The Pacific States. The Pacific States have had a growth 
peculiar to themselves, because of their comparative isolation 
from the rest of the Union, which forces them to depend largely 
upon their own resources. • When the census of 1850 was taken 
gold had just been discovered in California, and the situation 
there was similar to that above described as existing in the 
Rocky Mountain States. The entire manufacturing development 
of the Pacific States has taken place, therefore, in the last fifty 
years. The total value of products in 1900 ($485,670,399) con- 
stituted 3.3 per cent of the value of products for the United 
States. The industrial conditions in this group of states in 1900, 
considering the value but not the character of products, was 
about the same as that of the New England States in 1860 and 
of the Middle States in 1850. From this point of view the 
growth of the Pacific group has been remarkable. The charac- 
ter of its industries is still determined largely by its natural 
resources of farm, forest, and mine ; but the recent wars in the 
Orient, resulting in the opening of new markets, gave to the 
industries of this section a great stimulus which had only begun 
to be felt at the time the twelfth census was taken. 

4. The Organization of American Manufactures^ 

1. Individual ownership. It appears that of the four forms of 
organization differentiated in the table, that of the single em- 
ployer represents 372,703 establishments out of 512,254 report- 
ing, or 72.8 per cent of the whole. This is the system in which 

1 From Twelfth Census, Report on Manufactures, I, Ixvi-lxviii. Tor table 
see next page. 






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186 SELECTED READINGS IN ECONOMICS 

the single proprietor establishes and conducts a manufacturing 
or mechanical business on his individual responsibility, con- 
tributing the required capital, owning or renting the land and 
buildings utilized, and employing wage earners or doing all the 
work himself. I,'^ is the most natural and the most primitive 
form of business organization; but notwithstanding the large 
proportion of establishments in which it appears still to pre- 
dominate, its relative unimportance is shown by the fact that this 
great number of establishments produced only $2,674,497,008, 
or 20.6 per cent of the total value of products returned, being 
an average of $7l76 to each establishment. Of the 372,703 
establishments embraced in this group, 183,523, or nearly half, 
were establishments engaged in the hand trades. 

2. Partnership. The second form of organization represented 
in the table is the firm or partnership, in which two or more 
persons divide the work of business management and jointly 
assume the risks. The members of the firm, or the partners, 
divide profits or losses in certain proportions agreed upon, or in 
accordance with relative investments of capital, and are jointly 
and severally liable for all the debts of the firm or partnership to 
the full extent of their resources. Under this form of organiza- 
tion there were 96,715 establishments reported, or 18.9 per cent 
of the total. Their products were valued at $2,565,360,839, or 
19.7 per cent of the total. Although there were no statistics col- 
lected in 1890 with which to compare the totals above shown, it is 
clear that the relative importance of this form of organization in 
the conduct of manufacturing enterprises is rapidly diminishing. 

3. The corporation. The third form of organization repre- 
sented in the table is the modern business corporation. This is 
a joint-stock company, with capital divided into shares, which 
are transferable at the option of individual shareholders. These 
corporations either obtain a charter by special act of a state legis- 
lature or become incorporated under general corporation acts. 
Many of the earlier joint-stock companies, however, were not 
incorporated, and were therefore merely a form of partnership. 

The important and predominating position of the corporation 
in American manufactures at the present time is revealed by 



THE .AlAXUFACTURING INDUSTIHES 187 

the statistics. While only 40,743 of the 512,254 establishments 
reporting were organized into corporations, they nevertheless 
produced 't7, 733, 582,531, or 59.5 per cent of the total gross 
value of products. The facilities offered by the laws of several 
states for the establishment of business corporations, and the 
advantages of conducting business under this method of organi- 
zation, are largely responsible for the rapid development of our 
manufacturing industries. The corporate form of organization 
permits the gathering together of capital beyond the resources 
of the private individual, distributes it among many holders 
where this is desired, and limits the liability of each holder to 
the amount of money actually invested in the stock of the com- 
pany. Thus these organizations comprise nearly all the great 
manufacturing enterprises of the country. 

An examination of the accompanying tables will furnish 
statistical proof of this statement. The four great industiies 
producing articles of food, textiles, iron and steel, and lumber 
are largely controlled by corporate capital, and the same may 
be said concerning the lesser manufacturing industries. The 
hand trades are, however, still chiefly carried on by the single 
proprietor. Although these latter, in their nature, are outside 
the necessity of large capitalization, it was found that out of a 
total of 215,814 hand-trade establishments, 2691, with an aver- 
age annual production of $37,401, were operated under some 
corporate form, as a matter of convenience or business prudence. 

The wholesale slaughtering and meat-packing industry is now 
carried on almost wholly by large incorporated establishments. 
This has been due to the trade necessity of centralizing slaugh- 
tering at a few points convenient both to a large supply and to 
transportation facilities for quick delivery to the principal dis- 
tributing markets in the United States and in foreign countries, 
and to the advantage of locating and supporting agencies in 
these markets. 

About 89.9 per cent of the value of cotton-mill products is 
made by incorporated establishments. These constitute 72.8 per 
cent of the total number engaged in the industr3\ Very few cot- 
ton mills are now carried on without a charter of incorporation. 



188 SELECTED READINGS IN ECONOMICS 

The same form of organization appears in the manufacture 
of worsted goods, and to a less extent in the manufacture of 
woolen goods. The manufacture of worsted goods is carried 
on with a more expensive equipment than is necessary in the 
case of woolen goods. The latter industry is more suitable for 
the employment of small capital under individual attention. In 
the silk-manufacturing industry 27.3 per cent of the establish- 
ments was owned by individuals, 31.9 per cent by firms or 
partnerships, and 40.8 per cent by incorporated companies. 
Very much the same conditions exist in the hosiery and knit- 
goods business, 38.3 per cent of the mills being owned by indi- 
viduals in 1900, and 27.4 per cent by firms or partnerships. 

In the iron and steel industry in 1900 the value of the 
products of all kinds amounted to ifl, 793, 490, 908, of which 
$1,508,493,141, or 84.1 per cent, was the value of the products 
of incorporated companies, made by 4843 establishments, or 
34.9 per cent of the total number. Of the 13,896 establishments 
in the industry, 668, classified as "iron and steel," produced 
44.8 per cent of the total products; 586 of these, or 87.7 per 
cent, were incorporated, and produced 93.6 per cent of the total 
for that branch of the industry. This latter fact shows that the 
manufacture of iron and steel has reached proportions beyond 
the control of individual and partnership ownership. 

In the lumber industry in 1900 over one half of the value of 
products was made in individual and partnership establishments. 
This applies quite generally to the industry in all its branches, 
for it has not yet attained a development which makes incor- 
poration a matter of paramount importance. 

The leather industry, including the manufacture of boots and 
shoes, has also . remained largely under private ownership. Of 
the 16,989 establishments existing in 1900, 12,906 were owned 
by individuals. The nature of the industry still permits of this, 
although it is rapidly changing, the industry assuming larger 
proportions which require the employment of accumulated 
capital under a single and delegated management. The sad- 
dlery and harness branch of this industry is distributed among 
many individual establishments, which furnish over half of the 



THE MANUFACTURING INDUSTRIES 189 

value of its production. Of the 1G,989 establishments in the 
leather industry as a whole, 12,934 were engaged in the numu- 
facture of saddlery and harness. 

The manufacture of paper and wood pulp was chiefly carried 
on in 1900 by 484 corporations, which furnished products valued 
at fj<105,378,995, out of a total produced by 763 establishments 
and valued at !s5l27,32G,162. Of the 15,305 establishments 
engaged in the printing and publishing of newspapers and 
periodicals in 1900, 9759 were owned by individuals, 2994 by 
partnerships, and 2378 by corporations. These latter furnished 
58.1 per cent of the total value of products. 

In the liquor and beverage industry 71.7 per cent of the 
value of products reported in 1900 was reported by corporations. 
This applied very generally to all branches of the industry 
except bottling and the mineral and soda-water manufacture. 
In these individual ownership was the most important form of 
organization. The manufacture of malt and distilled liquors 
was under the control of corporations to the extent of 79.9 
per cent of its value of products. 

The chemical industry, in its various branches, was laigely 
capitalized in 1900 under some form of corporation, 81,4 per 
cent of the total value of its products being reported by corpo- 
rations. This form of organization was common in the refining 
of petroleum and in the manufacture of cotton-seed-oil fertil- 
izers, explosives, paints, and chemicals proper. The manufac- 
ture of perfumery, cosmetics, and patent medicines was still 
very largely carried on by individuals and firms. These branches 
included 42.1 per cent of the total number of establishments 
engaged in the chemical industry. 

The clay, glass, and stone industries are largely under indi- 
vidual and firm ownership. This is particularly true of the brick 
and tile manufacture, and such trades as china decorating, glass 
cutting, staining, and ornamenting, marble and stone work, and 
the making of monuments and tombstones. Nearly all the glass 
made in 1900 was produced by corporations, and, to a less ex- 
tent, the same is true of the manufacture of pottery^ terra cotta, 
and fire-clay products, as well as lime and cement products. 



190 SELECTED READINGS IN ECONOMICS 

In the manufacture of metal products, other than iron and 
steel, corporate production predominated. This is plainly seen 
in the smelting and refining industries. Thirty-three of the 
thirty-nine establishments engaged in smelting and refining 
lead were corporations. These reported 99.7 per cent of the 
total value of products. Twenty-six corporations of the thirty- 
one establishments engaged in the smelting and refining of zinc 
reported 92.0 per cent of the total value of products. Forty- 
three corporations of the forty-seven establishments engaged in 
the smelting and refining of copper reported 96.9 per cent of 
the total value of products. The smaller manufactures and 
trades, as jewelry making, electroplating, tinsmithing, and the 
reducing and refining of gold and silver, not from the ore, were 
very largely in the hands of individuals and firms. 

The tobacco industry in 1900 was conducted chiefly by 
individuals and partnerships, and particularly was this the case 
with the manufacture of cigars and cigarettes, where the value 
of the product for these classes of establishments was 77.1 per 
cent of the total. The manufacture of chewing and smoking 
tobacco and snuff was very largely carried on by corporations, 
their establishments producing 85.9 per cent of the value of 
the products of this branch of the industry. 

The manufacture of vehicles for land transportation was 
carried on chiefly by corporations in all its branches except 
carriages and wagons, the chief of these branches being the 
manufacture of steam and street-railroad cars. 

Iron and steel shipbuilding was carried on almost wholly by 
corporations, while 63.4 per cent of wooden ship and boat 
building was done by individuals and firms, 43.7 per cent being 
done by individuals and 19.7 by firms. 

The production of the following miscellaneous industries was 
chiefly that of corporations : agricultural implements, ammuni- 
tion, coke, electrical apparatus and supplies, enameling and 
enameled goods, fireworks, gas, illuminating and heating, manu- 
factured ice, lead pencils, phonographs and graphophones, photo- 
graphic materials, rubber and elastic goods, soda-water apparatus, 
washing machines and clothes wringers, and windmills. 



THE MANUFACTURING INDUSTRIES 191 

4. Miscellaneous ownership. The table shows only 2003 estab- 
lishments reporting their form of organization as different from 
the three forms above considered. These establishments pro- 
duced <|oO, 959,765, or only 0.2 per cent of the gross value 
of products. 

The small number indicates the infinitesimal part which 
cooperation, either on the English (Rochdale) system or any 
other system, plays in the manufacturing industries of the 
United States. There are some striking instances of success in 
this form of organization in certain industries, the most notable 
being in the manufacture of butter, cheese, and condensed milk, 
which single industry reported 1765 out of the 2093 establish- 
ments of this class, and a product of -f 24,337,561, or 78.6 per 
cent of the total. Eight cooperative associations were shown in 
cotton ginning and nineteen in the canning and preserving 
of fruits and vegetables. These establishments are generally 
organizations of farmers who combine for the purpose of hand- 
ling the produce of their farms. There were seven cooperative 
associations in the glass industry, with products valued at 
tf545,319. The S[)ecial report on the glass industry in the 
Report on ]\Ianufactures, Part III, contains the following state- 
ment in regard to this form of organization : 

The five companies of a " miscellaneous " character were all cooperative 
and engaged in the manufacture of window glass, most of them having 
been established within the census year, and were financially supported by 
the glass workers' union, which loaned money proportioned on the pot 
capacity of each plant. There were two establishments of this character 
reported in the pressed and blown ware and bottle and jar branch of the 
industry. It should be stated, in this connection, that there were in the 
glass industry, in addition, nine incorporated establishments of a cooperative 
character operating under charters, which in all the tables are included 
under the head of corjKJrations. They are in all essential i)articulars 
cooperative associations. This movement toward cooperation arose from 
the desire to secure more work dm-ing the year, the capacity of the factories 
having been for some time so much in excess of current consumption that 
the "run" of the factories had been getting less each year, averaging 
about six months where it was formerly ten. The pa.st record of coopera- 
tion in the window-glass industry of the United Slates has been unsatis- 
factory, all going well as long as the market conditions were good, but 



192 SELECTED READINGS IN ECONOMICS 

financial ruin usually appearing with any depression in the trade. The 
indications at present are very favorable for cooperative manufacture, and 
it vi^ill probably spread very rapidly in the industry in the near future. 
The greatest impetus it receives comes from the scarcity of workmen, 
which is leading manufacturers to organize companies in which a large 
share of the stock is held by the workmen, who are thus less likely to be 
tempted away by offers from other manufacturers. Along with these 
quasi-cooperative cornpanies many real cooperative companies, composed 
entirely of the men in the factory, are being established, especially among 
the Belgian workmen, who form a considerable proportion of the entire 
working force. 

It should be explained that all returns from manufacturing 
establishments of a cooperative character, which were incor- 
porated under state laws, were treated as corporations and so 
tabulated. 

Other establishments included among the miscellaneous forms 
of organization are several "communities," so called, — a number 
of societies, churches, and colleges, which for the most part 
were engaged in the publication of periodicals devoted to their 
own interests. Under these miscellaneous forms of organiza- 
tion there were one hundred and seventy-four establishments, 
showing a product of $3,102,785, engaged in printing and 
publishing newspapers. 



CHAPTER VII 

STUDIES OF THE IRON AND COTTON INDUSTRIES 

1. The Iron Industry in the United States ^ 

Thirty years ago Great Britain was still the world's com- 
manding producer of iron and steel. Notwithstanding half a 
century or more of almost continuous protection, the United 
States held but a distant second place. The output of pig iron 
in the old country in 1870 was very nearly six millions of tons ; 
that in the new country was but little over a million and a half. 
But between 1860 and 1870 the product in the United States 
had doubled, — a geometrical progression, which, if maintained, 
must soon cause all rivals to be distanced. It is much easier, 
however, to double a small number or a small output than a 
large one : the rate of growth in the beginnings of a movement 
is rarely maintained for long during its later course. Yet in this 
case the unexpected happened : for three decades the geometrical 
progression was maintained in the output of pig iron in the 
United States. The product of 1870 had been double that of 
1860, 1880 doubled 1870, and 1890 again doubled 1880. The 
iron industry of Great Britain held its own, and, indeed, 
between 1870 and 1880 made a notable advance ; but it could 
not match the astounding pace of its young rival. In 1890 the 
United States turned out more than nine million tons of pig 
iron, for the first time passing Great Britain and displacing 
that country suddenly as the leading producer. The depression 
which followed the crisis of 1893 caused a sharp decline in the 
American product, the lowest point being reached in 1894. 
But with the revival of activity after 1896 the figures again 
mounted, reaching near twelve millions in 1898 and fourteen 

1 By F. W. Taussig. Reprinted from the (Quarterly Journal of Economics, 
February, 1900. 

193 



194 



SELECTED READINGS IN ECONOMICS 



millions in 1899. The year 1900 will hardly show a repetition 
of the feats of the previous decades. The pace of the geo- 
metrical progression is too killing to be maintained ; yet all 
present indications are that the close of the decade will show 
an output beyond the dreams even of five years ago.^ 

This enormous increase, however, has been by no means 
evenly distributed over the United States. Within the country 
a revolution has taken place, which is part and parcel of the 
changed relation to other countries, and which must be followed 
before the latter can be understood. 

The first great impulse to the production of crude iron on a 
large scale came in the United States with the successful use 
of anthracite coal as fuel. During the twenty years preceding 
the Civil War (1840-1860) the site of the industry and its growth 

1 The figures as to the iDi'oduction of iron in the two countries are easily 
found in tire excellent statistical reports prepared for the trade in the two 
countries, — the Statistical Reports of the British Iron Trade Association, of 
which Mr. J. S. Jeans has long been secretary, and the Statistical Reports of 
the Iron and Steel Association, of which Mr. J. M. Swank has been the equally 
efficient secretary. For quinquennial periods the output of pig iron in Great 
Britain and the United States has been as given below. The figures for Ger- 
many (including Luxemburg) are given also; the growth there, too, has been 
extraordinarily rapid. 







Great Britain 


United States 


Germany 


1870 


5963 
6365 
7749 
7415 
7904 
7703 
8563 
8817 
8681 


1,665 

2,024 

3,835 

4,044 

9,203 

9,446 

8,623 

9,653 
11,774 
14,000 (est.) 


1391 


1875 . 


2029 


1880 


2729- 


1885 


3687 


1890 


4658 


1895 


5464 


1896 


6375 


1897 


6864 


1898 


7216 


1899 









Eor the United States and Great Britain the figures denote thousands of 
gross tons of 2240 pounds ; for Germany, metric tons of 2204 pounds. 



[Since 1899 the output of the United States has been as follows : 

1906 = 25,307 



1900 = 13,789 

1901 = 15,878 



1902 = 17,821 

1903 = 18,009 



1904 = 16,497 

1905 = 22,992 



■Ed.] 



THE IKON AND COTTON INDUSTRIES 195 

were governed by this fuel ; hence eastern Pennsylvania was 
the main producing district. The supplies of ore near this region 
were smelted with its anthracite coal, and Philadelphia was 
the central market. Proximity to the seaboard made foreign 
competition easy, except so far as it was hampered by the 
tariff duties ; and the very existence of the iron industry was 
felt to depend on the maintenance of protection. For some time 
after the close of the Civil War this dominant position of 
anthracite iron was maintained. In 1872, when the systematic 
collection of detailed statistics began, out of a total production 
of two million five hundred thousand tons, one half was smelted 
with anthracite coal, a third with bituminous coal or coke, the 
remainder with wood (charcoal). The use of soft coal, which 
had begun before 1860, became rapidly greater. Already in 1872 
it was important, and from year to year it grew. In the periodic 
oscillations between activity and depression, which mark the iron 
trade more distinctively than any other industry, anthracite iron 
shrank sensitively in the slack periods, and barely regained its 
own in the succeeding periods of expansion. Bituminous or 
coke iron, on the other hand, held its own during the hard times, 
and advanced by leaps and bounds with each revival of activity. 
In 1875, for the first time, its output exceeded that of the rival 
eastern fuel, and since that date the huge advance in the iron 
product of the United States has been dependent on the use of 
coke. Indeed, the use of anthracite alone began to shrink at a 
comparatively early date. It soon ceased to be used on any 
large scale as the sole fuel, coke being mixed with it for use in 
the blast furnace. The production of iron with anthracite coal 
only has shrunk to insignificant dimensions. What is classed as 
" anthracite iron " is smelted with a mixture of coke and hard 
coal ; and, even with the aid of the coke, this means of reducing 
the ore has come to be of less and less importance. Virtually, 
anthracite coal has been displaced as an iron-making fuel.^ 

This change is easy of explanation. It is the inevitable result 
of the greater plenty and effectiveness of coke ; and it has been 

1 The production of pig iron by fuel at quinquennial intervals is given in the 
table on page 100. By way of illustrating the trend over a long period, the year 



196 



SELECTED READINGS IN ECONOMICS 



powerfully promoted by the rapid development of the United 
States west of the Appalachian chain, and the nearness of the 
coke region to this growing market. Anthracite, at best, is an 
obdurate fuel. At the same time its strictly limited supply and 
the cleanliness and freedom from smoke, which make it an ideal 
domestic fuel, have maintained its price at a comparatively even 
level. On the other hand, the almost unlimited supplies of 
bituminous coal and the feverish competition in opening coal 
lands and marketing their product have caused an almost unin- 
terrupted fall in its price. Coke has proved, ton for ton, a 
better fuel than anthracite ; the supplies of bituminous coal 
available for coking are virtually limitless, and the processes 
of coking have been applied on a huge scale and with tire- 
less energy. 

Pittsburg, long ago seen to be destined to become a great iron 
center, is situated in the heart of the region where coking coal 
is plentiful. To this point the iron industry has converged, 
attracted first by cheap fuel and soon by other geographical 

1855 has been taken as the starting point. The figures, as in the previous 
table, indicate thousands of gross tons . 







Pig Iron smelted with 




Anthracite 


Bituminons 


Charcoal 


1855 


341 
464 
428 
830 
811 
1614 


56 
109 
169 
508 
846 
1741 

2,389 
6,388 
7,950 
7,166 
8,465 
10,274 


303 


1860 


248 


1865 ... 


234 


1870 


326 


1875 


367 


1880 


480 








Anthracite 
alone 


Anthracite 
and Coke 




1885 


250 
249 
56 
111 

21 
22 


1059 
1937 
1214 
1034 
912 
1181 


357 


1890 


628 


1895 


225 


1896 


310 


1897 


255 


1898 


297 







[In 1906 the pig iron smelted with anthracite or anthracite and coke amounted 
to 1,560,686 tons ; that smelted with charcoal amounted to 433,000 tons ; and 
that smelted with bituminous coal or coke amounted to 23,313,498 tons. — Ed.] 



THE IRON AND COTTON INDUSTRIES 197 

advantages of tlie region, — its easy access to the growing 
western country, and the added opportunities of securing super- 
abundant quantities of the best ore. Pennsylvania hits remained 
the greatest iron-producing state in the Union ; but since 1880 
it has been western Pennsylvania, and no longer eastern, which 
has secured to the state its leading position. Since 1890 this 
district alone has yielded steadily 40 per cent of the enormous 
iron product in the country ; and it is here, and in the other 
western districts in which the same industrial forces have been 
at work, that we have to study the conditions on which the 
growth of the iron industry has depended. 

The westward movement has been spoken of in the preced- 
ing paragraph as affected by the geographical distribution of the 
fuel. But it has been no less affected by the distribution of the 
ore supply, and the effect of this in turn has rested on the revo- 
lution wrought in the iron trade by the Bessemer process. 

The first inventions which made plentiful the iron indis- 
pensable for all our material civilization were Cort's processes 
for puddling and rolling. Through the first three quarters of 
the century this was the mode in which the world got its supply 
of the metal in tough form, usable where heavy strain must 
come on it. The processes involved at once a considerable plant, 
complex machinery, and strenuous exertion by skilled and pow- 
erful laborers, — conditions which during this period promoted 
the supremacy of the British iron trade. In the decade 1860- 
1870 the process devised by Sir Henry Bessemer, to which his 
name attaches, began a second revolution in the iron trade. 
That process involves a still larger plant and still more elabo- 
rate machinery; and it applies machinery more fully to the 
elimination and subsequent replacing of the carbon on which 
the toughness of the iron depends. By the new methods the 
production of mild steel — that is, tough iron — became pos- 
sible on a vastly greater scale, Bessemer steel has displaced 
puddled iron in most of its uses. Not only this : the cheap and 
abundant supply, besides filling needs previously existing, has 
opened vistas for new plant, machinery, durable instruments of 



198 SELECTED EEADINGS IN ECONOMICS 

production of all sorts. The first great application of the method 
was to rails, where the elastic and impact-sustaining steel en- 
abled railway engines and cars to be doubled and quadrupled 
in size, and to become more efficient in even greater ratio. 
Gradually and steadily new and wider uses were found for the 
cheap steel. From great ships down to everyday nails, almost 
every iron instrument became cheaper and better. Wood was 
supplanted by steel for a variety of uses, and the slow-growing 
and easily exhausted stores of timber were reenforced by the 
well-nigh limitless deposits of ore in the earth's crust. A new 
domain in nature's forces was opened to man. 

But the Bessemer process depends for its availability on 
special kinds of ore and pig iron, — such as are well-nigh free 
from sulphur and especially from phosphorus. Variants of the 
process, free from this limitation, have indeed been applied on a 
great scale, especially in Germany, where supplies of non-phos- 
phoric ore are not readily available. But the original Bessemer 
process remains the most effective and the most economical. 
Ores adapted to it have hence become doubly valuable, and the 
accessible parts of the earth have been scoured to find them. 
The deposits of Great Britain in Cumberland and Lancashire 
contained important supplies, yet not in quantity adequate to 
the new demand ; and the Spanish fields of Bilboa, on the Bay 
of Biscay, have become an indispensable supplement for the 
British ironmasters. In the United States, also, some of the 
sources previously used in the region east of the Appalachian 
chain proved to be available, — such as the famed deposits, 
once unique in their ease of working, in the Cornwall hills of 
eastern Pennsylvania. But the greater part of the eastern ores 
were too highly charged with phosphorus, or for other reasons 
unavailable. Here, as in Great Britain, a distant source of sup- 
ply was turned to. The Lake Superior iron region, long known 
to explorers and geologists, suddenly sprang into commanding 
place. Here were abundant and super-abundant supplies of rich 
and properly constituted ore. These and the equally abundant 
coal of Pennsylvania were brought together, the iron made from 
them was converted into steel by the Bessemer process ; and 



THE IRON AND COTTON INDUSTRIES 199 

thus only became possible the astounding growth in the pro- 
duction of iron and steel in the United States. 

The iron mines of the Lake Superior region stretch in widely 
separated fields along the lake, from the middle of its southern 
shore to its extreme northwestern end. Intercalated between 
them is the great copper-bearing peninsula, whose rich yield of 
that metal has affected the copper trade in the same manner and 
almost in the same degree as the iron mines have the iron trade. 
At the extreme eastern end is the Menominee iron field, usually 
described in connection with the other Lake Superior fields, 
yet differing from them in important respects. The ore of the 
Menominee district is easily mined ; and it is easily shipped, 
finding an outlet by the port of Escanaba on Lake Michigan, 
and thus traversing a much shorter journey to its eastern 
markets than that from the Lake Superior mines proper. But 
it is usually of non-Bessemer quality, and hence can play no 
considerable part in the most characteristic effects of the new 
developments. The great Bessemer ore fields of Lake Superior 
are four in number, — in geographical order from east to west, — 
the jNIarquette, the Gogebic, and the neighboring Vermilion and 
Mesabi. As it happens, the geographical order has been also, in 
the main, the order of exploitation. The easternmost, the ]\Iar- 
quette, finding its outlet by the port of that name, was the first 
to be worked on a great scale. Even before the Civil War min- 
ing and smelting had begun ; and, as the Bessemer process was 
more and more largely used, especially after 1873, it was ex- 
ploited on a larger and larger scale. Here began the digging on 
a great scale, and the transportation to great distance, of Bes- 
semer ore. After a considerable interval the second field, the 
Gogebic, began to be worked, in 1884. Lying some two hun- 
dred miles further west, along the boundary line between Wis- 
consin and Michigan, and finding its outlet by Ashland, on the 
southern shore of Lake Superior, here was found perhaps the 
richest and purest Bessemer ore. At about the same time, in 
1881, began the development of the most distant of the fields, 
the Vermilion, lying to the north of the extreme end of Lake 
Superior, in the state of Minnesota, close to the Canada frontier. 



200 SELECTED READINGS IN ECONOMICS 

Here, too, were great stores of ricli Bessemer ore, shipped by 
the port of Two Harbors on the northern shore of the lake. 

In all these fields the ore has been secured by what we com- 
monly think of as "mining," — by digging into the bowels of 
the earth and bringing the material up from a greater or less 
depth. But in very recent years the latest and now the most 
important of the fields has given opportunity for the simplest 
and cheapest form of mining ; great bodies of ore are lying close 
under the ground, and, when once the surface glacial drift has 
been removed, obtainable by simple digging and shoveling, as 
from a clay pit.^ Along the Mesabi ^ range of hills, lying about 
one hundred miles northwest of the end of Lake Superior, dis- 
tant not many miles from the Vermilion range, vast tracts of 
rich iron ore, finely comminuted and easily worked, lie close 
to the surface. Here a new source of supply was added, offer- 
ing unique opportunities for exploitation on a great scale. These 
opportunities were availed of with astounding quickness. The 
Mesabi field at once sprang into the front rank among the Lake 
Superior fields, and, indeed, among all the iron-ore fields of the 
world. Ten years ago the region was a trackless waste. In 
1892 it was opened by railway. Towns sprang up, huge steam 
shovels attacked the precious ore, and long trains carried it to 
the newly constructed docks at the port of Duluth. Even dur- 
ing the depression that followed the crisis of 1893 the output 
from this field mounted year by year. In 1893, virtually the 
first year of operation, six hundred thousand tons were shipped 
from it; in 1894, thrice that amount; and in 1895 it became, 
what it has since remained, the most productive of the iron- 
mining districts. A little less than half of the ore is of Bessemer 
grade. Its physical constitution, moreover, is such that, for 
advantageous use in the furnace, other ore needs to be mixed 
with it. Were it all of the prized Bessemer quality, and in the 
best form, the other fields might be entirely displaced. With 

1 It should be noted that in the Marquette region, also, the iron ore was 
secured at the first working and for many years thereafter by open cuts. But 
the extraction of ore on a great scale has proceeded by underground operations. 

" Variously spelled : Mesabi, Mesaba, Messabi, Messaba. 



THE IRON AND COTTON INDUSTRIES 



201 



the limitations in the quality of the new ore, the other fields 
still find themselves able to hold their own in the market, though 
their supremacy is ended by the favored rival. 

For many years the Lake Superior mines have been the 
main sources of supply for the iron ore of the American iron 
industry. More than half of the total supply had here been 
secured; and the Bessemer supply, which has been by far the 
most effective and significant part of the total, has come mainly 
from this region.^ 

In this brief description of the Lake Superior iron region, 
reference has been made to tlie ports by which the ore is shipped, 

— Escanaba, Marquette, Ashland, Duluth, Two Harbors. To 
each of these the ore must be carried by rail from the mines, 

— sometimes a few miles, sometimes, as with a large part of 
the Minnesota supplies, a hundred and more. And, with this 
first movement, only the beginning is made in its long journey. 

1 The United States Geological Survey, in its successive admirable Reports 
on the Mineral Resources of the United States, has followed the history of the iron 
fields of Lake Superior, as, indeed, of all the mineral resources of the country. 
In the issue for 1895-1890 (forming Vol. Ill of the Seventeenth Annual Report of 
the Survey) a summary description is given, with convenient sketch maps show- 
ing the location of the several fields. In Cassier's Magazine for October, 1899, 
Messrs. J. and A. P.. Head, two English engineers, published an excellent brief 
account of the Lake Superior mines, and of the modes of working them. 

The relative importance of the fields, the order in which they have been de- 
veloped, and their relation to the iron-ore production of the whole country are 
shown by the following figures : 

Iron-Ore Production (in Thousands of Gross Tons) 



Menominee . . . 
Marquette .... 

Gogebic 

Vermilion .... 

Mesabi 

Total Lake Superior 
Total United States 



592 
1384 



1987 
7120 



1885 



690 

1430 

119 

225 



24GG 
7600 



1890 



2,282 

2,993 

2,847 

880 



7,071 
16,036 



1895 



1,924 
2,098 
2,548 
1,079 
2,781 
10,429 
15,957 



1898 



2,527 
3,125 
2,498 
1,265 
4,614 
14,030 
19,434 



For 1899 the Lake Superior product was about 18,600,000 tons. 

[In 1902 the output of the Lake Superior mines was 26,273,000 tons, and that 
of the United States was 35,507,000 tons. — Ei>.] 



202 SELECTED EEADINGS IN ECONOMICS 

From the shipping port it is carried eastward by water to meet 
the coal, — the coal being coked at the mines, and in that form 
made best available for smelting purposes. Some of the ore 
goes down Lake Michigan to Chicago, where it meets the coal 
from Pennsylvania about halfway. Some of it goes farther, 
through Lakes Huron and Erie, and meets the coal at Toledo, 
Ashtabula, Cleveland, and other ports on Lake Erie. The 
largest part is unloaded from the vessels at lake ports, and car- 
ried by rail to the heart of the Pittsburg coal district, there to 
be smelted by the coal on its own ground. No small amount 
goes even beyond, — to the eastward in Pennsylvania, beyond 
the Pittsburg district, even into New Jersey and New York, 
almost to the seaboard itself. Henpe the cities of Erie and 
Buffalo have become important ore-receiving ports on Lake 
Erie, the ore, if not smelted there, going thence by rail on its 
journey to the smelter. This last and farthest invasion of dis- 
tant regions by the Lake Superior ore has been promoted by 
the import duty on the competing foreign ore which seeks to 
find an entrance by the Atlantic seaboard, — an aspect of the 
iron trade of which more will be said in the second part of 
this paper. 

The iron-producing region which depends on the Lake 
Superior ores thus stretches over a wide district, the extreme 
ends being separated more than a thousand miles. Close by 
the iron mines are a number of charcoal-using furnaces in Wis- 
consin and Michigan. The still unexhausted forests of these 
states supply this fuel in abundance ; and charcoal iron, though 
long supplanted for most uses by the coke-smelted rival, has 
qualities which enable a limited supply to find a market, even 
at a relatively high price. Next in order come Chicago (South 
Chicago) and some neighboring cities, among which Milwaukee 
in Wisconsin and Joliet in Illinois are the most notable. It is 
one of the surprises of American industry that iron manufac- 
turing on a huge scale should be undertaken at such points, 
distant alike from ore and from coal and having no natural 
advantages whatever. The coke is moved hundreds of miles 
by rail from Pennsylvania, and meets the ore which has traveled 



THE IRON AND COTTON INDUSTRIES 203 

no less a distance from Lake Superior. Ease of access to the 
western market gives these sites an advantage, or at least goes 
to offset the disadvantage of the longer railway haul of the 
fuel. Other iron-producing points of the same sort are scattered 
along Lake Erie. At each of the ports of Toledo, Lorain, Ash- 
tabula, Erie, Buffalo, especially Cleveland, ore is smelted and 
iron and steel making is carried on. But the coal region itself 
— western Pennsylvania and the adjacent parts of Ohio — 
remains the heart and center of the iron industry. Hither most 
of the ore is carried ; and here the operations of smelting, con- 
verting into steel, fashioning the steel into rails, bridges, plates, 
wire, nails, structural forms for building, are performed on the 
greatest scale. For some years the natural gas of this region 
added to its advantages and aided in its exceptionally rapid 
growth. But each supply of gas exhausted itself before long, 
and new discoveries did not maintain the inflowing volume at 
its first level. It was the abundant and excellent coal which 
formed the sure basis of the manufacturing industries, and 
the permanent foundation more especially of iron and steel 
making. 

Whether the ore goes to the coal or the coal meets the ore 
halfway, one or both must travel a long journey, by land as 
well as by Avater. One or both must be laden and unladen sev- 
eral times. A carriage of eight hundred, nine hundred, over one 
thousand miles must be achieved, with two separate hauls by rail. 
Fifty years ago, even twenty years ago, it would have seemed 
well-nigh impossible to accomplish this on a great scale and 
with great cheapness. The geographical conditions on which a 
large iron industry must rest were supposed by Jevons in 1866 
to be the contiguity of iron and coal.^ But here are supplies of 
the two minerals separated by a thousand miles of land and 

1 Jevons, The Coal Question, second edition, chap. xv. Jevons in that chap- 
ter looked for important changes in the United States, chiefiy from the wider 
use of anthracite in iron making. The fact that "the American.s are, of all 
people in the world, the most forward in driving canals, river navigations, and 
railways" was noted by him as sure to affect the American iron trade; but 
even his keen imagination and wide knowledge could not foresee how much 
and in what directions this "driving" would operate. 



204 SELECTED KEADINGS IN ECONOMICS 

water, and combined for iron-making on the largest scale known 
in the world's history. One of the most sagacious of American 
students of economics, Albert Gallatin, early predicted that the 
coal area of western Pennsylvania would become the foundation 
of a great iron industry, and that only with its development 
would the American iron manufacture attain a large independent 
growth.^ But he could not dream that his prophecy would be 
fulfilled by the utilization of ores distant fifteen hundred miles 
from the seaboard, transported from a region which was in his 
day, and remained for half a century after his day, an unex- 
plored wilderness. 

The history of the American iron trade in the last thirty 
years is thus in no small part a history of transportation. The 
cheap carriage of the ore and coal has been the indispensable 
condition of the smelting of the one by the other.^ And, clearly, 

1 "A happy application of antliracite coal to the manufacture of iron, the 
discovery of new beds of bituminous coal, the erection of iron works in the 
vicinity of the most easterly beds now existing, and the improved means of 
transportation which may bring this at a reasonable rate to the sea border, 
may hereafter enable the American ironmaster to compete in cheapness with 
the foreign rolled iron in the Atlantic district. . . . The ultimate reduction of 
the price of American to that of British rolled iron can only, and ultimately 
will, be accomplished in that western region which abounds with ore, and in 
which is found the most extensive formation of bituminous coal that has yet 
been discovered in any part of the globe, and this also lying so near the sur- 
face of the earth as to render the extraction of the mineral less expensive 
than anywhere else." — Albert Gallatin, "Memorial to the Free Trade Con- 
vention" (1832), as reprinted in State Papers and Speeches on the Tariffs 
pp. 179, 180. 

2 "Few people who have not actually run a blast furnace realize what it 
means to fill the capacious maw of one of these monsters with raw material. 
A stack of 200 tons daily capacity, running on 50 per cent ore must have 
delivered to it each day something more than 400 tons of ore, 250 to 300 tons 
of coke, according to the character of the metal required, and over 100 tons of 
limestone, — say 900 tons of raw materials. Add the 200 tons of pig iron 
shipped out, and we have a daily freight movement of 1100 tons, taking no 
note of the disposition of the slag. This is 55 car loads of 20 tons each [a modern 
ore car will carry 30 tons. — F. W. T.]. . . . Starting up a furnace of ordinary 
capacity calls immediately for the labor, from first to last, of nearly a thousand 
men ; for the use of at least a thousand railway cars, and many locomotives ; 
for perhaps several steamers and vessels on the lakes." — A. Brown, "The 
Outlook in the American Iron Industry," in the Engineering Magazine, October, 
1899, p. 88. 



THE IRON AND COTTON INDUSTRIES 205 

this factor has not been peculiar to the iron industry. The 
perfecting of transportation has been almost the most remarkable 
of the mechanical triumphs of the United States. Great as have 
been the evils of our railway methods, disheartening as have been 
some of the results of unfettered competition, the efficiency of 
the railways has been brought to a point not approached else- 
where, largely in consequence of that very competition whose 
ill effects have been so often and so justly dwelt on. The good 
has come with the evil ; and here, as in the whole domain of 
private property and competitive industry, the crucial problem 
is how to eradicate the ill and yet maintain the good. In the 
carriage of iron ore and of coal the methods of railway trans- 
portation developed under the stress of eager competition have 
been utilized to the utmost ; and the same is true of the transfer 
from rail to ship and from ship to rail again, of the carriage in 
the ship itself, and of the handling of accumulated piles of the 
two materials. The ore is loaded to cars at the mines by 
mechanical appliances. At the INIesabi mines the very steam 
shovel that digs the ore from the ground deposits it in the 
adjacent car. At the lake high ore docks protrude hundreds of 
yards into the water. On top of them run the trains, the ore 
dropping by gravity from openings in the car bottoms into the 
pockets of the docks. Thence it drops again through long ducts 
into the waiting vessels, ranged below alongside the dock. At 
every step direct manual labor is avoided, and machines and 
machine-like devices enable huge quantities of ore to be moved 
at a cost astonishingly low.^ The vessels themselves, con- 
structed for the service, carry the maximum of cargo for the 
minimum of expense ; while the machinery for rapid loading 
and unloading reduces to the shortest the non-earning time of 

1 "Every oxtra liandlinc; moans more cost. . . . Formerly it was necessary 
to trim the cargoes; and this had to be done by hand, and gave employment 
to a great many men at exceedingly high wages. The work, however, was kill- 
ing while it lasted. Kow trimming i.s in most cases done away with, because 
the immense size of the freighters renders them stable in any weather ; and if 
there is any great inequality in the trim of the boat, it is rectified by shifting 
tlie water ballast from one compartment to another." — Peter White, " The Min- 
hig Industry of Northern Michigan," in Public. Mich. Pol. Sci. Assoc, III, 153. 



206 SELECTED READINGS IN ECONOMICS 

lying at the docks. At the other end of the water carriage, 
especially on Lake Erie, similar highly developed mechanical 
appliances transfer from boat to railway car again, or, at will, 
to the piles where stocks are accumulated for the winter months 
of closed navigation. At either end the railway has been raised 
to the maximum of efficiency for the rapid and economical car- 
riage of bulky freight. What has been done for grain, for cot- 
ton, for coal, for all the great staples, has been done here also, 
and here perhaps more effectively than anjnjvhere else: the 
plant has been made larger and stronger ; the paying weight 
increased in proportion to the dead weight ; the ton-mile expense 
lessened by heavier rails, larger engines, longer trains, and easier 
grades ; the mechanism for loading, unloading, transshipping, 
perfected, to the last degree, or to what seems the last degree 
until yet another stage towards perfection is invented. And 
evidently here, as elsewhere, the process has been powerfully 
promoted by unhampered trade over a vast territory, and the 
consequent certainty that costly apparatus for lengthened trans- 
portation will never be shorn of its effectiveness by a restriction 
in the distant market. 

Still another factor has been at work in the iron trade, as it 
has in other great industries, — the march of production to a 
greater and greater scale, and the combination of connected 
industries into great single-managed systems. Nothing is more 
wonderful in the industrial history of the past generation than 
the new vista opened as to the possibilities of organization. 
The splitting up among different individuals and separate estab- 
lishments of the successive steps in a complicated industry — 
those of the miniug, carrying, smelting, rolling, fashioning of 
iron — was supposed to be due to the limitations of human 
brain and energy : the management of them all was beyond 
the physical and nervous capacity of any one man or of any 
small group of associates. But the range of single management, 
the size of the unit, have enlarged prodigiously. The increasing 
application of machinery has made it possible to reduce opera- 
tions more and more to routine and system, and to lessen the 
need of independent judgment for every step. Technological 



THE IRON AND COTTON INDUSTRIEkS 207 

education has supplied an array of trained, intelligent, and 
trustworthy assistants — engineers, chemists, mineralogists, elec- 
tricians — to whom can be delegated a multitude of steps and 
processes that formerly needed the watchful eye of the master 
himself. That master must possess new powers and new re- 
sources ; and the freedom of the modern industrial community, 
and especially the free atmosphere of our restless and reckless 
democracy, have stimulated and drawn forth the masterful minds 
from every social stratum. Hence in all directions we see com- 
binations which unite in one whole a number of associated indus- 
tries, and, at their best, secure the highest industrial elhciency ; 
at their best, — for only then are the gains permanently secured. 
The retribution for error in management is as great as are the 
rewards of success ; and judgment has become the most highly 
prized and highly paid human talent. 

The iron trade has shown as markedly as any of the great 
industries the signs and effects of these new conditions. Not 
only has the size of individual establishments grown, — this is 
a phenomenon of longstanding, — but the number of industries 
united in one organization has rapidly enlarged. Iron mines, 
coal mines, coke ovens, railways, steamers, docks, smelting 
works, converting works, rolling mills, steel works, machine 
shops, — these have been combined into one imposing complex. 
The great iron and steel companies operate iron mines on Lake 
Superior, coal mines and coke establishments in Pennsylvania, 
docks and railways, as well as iron and steel works proper. The 
largest of them, the Carnegie Company, has built a railway of 
its own, specially equipped for the massive and cheap carriage 
of ore and fuel, from the shore of Lake Erie to the Pittsburg 
coal district. At its terminus on Lake Erie (Conneaut) a new 
harbor and a new city have been created. The economy in pro- 
duction from such widely ramifying organizations is not merely 
or chiefly in dispensing with the services and saving the gains 
of so many independent middlemen : it arises mainly from 
consistent planning of every stage, the nice intercalation of 
operations, the sweeping introduction from end to end of expen- 
sive and lapid-working machinery, continuously supplied under 



208 SELECTED EEADINGS IN ECONOMICS 

homogeneous administration with the huge quantities of mate- 
rial which alone make possible effective and economical utiliza- 
tion of the great plant.^ 

* * * *-**-* * 

While the Lake Superior ores, utilized under the conditions 
just described, have been by far the most important source of 
supply for the iron industry, a large contribution has come from 
another source also, — from the Southern States. 

In the region where the states of Tennessee, Alabama, and 
Georgia adjoin, the conditions once thought indispensable for a 
flourishing iron industry exist in perfection. Here are great 
deposits of ore, easy of working ; and close by them great 
deposits of coking coal, no less easily worked. Before the Civil 
War these natural advantages were not utilized : the regime of 
slavery and the lack of means of transportation prevented any 
resort to them. But with the quickening of the industrial life 
of the South, when once the Civil War and the trying days of 
reconstruction were passed, the mineral resources of this region 
were developed on a rapidly enlarging scale. Alabama, where 
the best deposits of coal occur, became a great iron-producing 
state: here again, though for a less distance and on a smaller 
scale, the ore made its journey to the coal. The rate of growth 
was most rapid between 1880 and 1890 : the pig-iron output of 
Alabama rose from 69,000 tons in 1880 to 915,000 in 1890. 
The large supply of labor at low wages has contributed to the 
easy and profitable utilization of this source of supply. The 
free negro has turned miner, and has proved not only a docile 
laborer but also, — paid, as miners are, according to the tonnage 
brought to the pit's mouth, — on the whole, an efficient one. It 
may be a question how far the low money-wages paid to him 
are low simply in proportion to his still moderate efficiency, and 
how far they constitute a factor of real importance in enabling 
the product to be put on the market at a low price. The favor- 
able natural conditions, when once unlocked by the regime of 

1 In 1901 most of the large companies then engaged in the iron and steel 
Industry were united in the United States Steel Corporation, — the "Steel 
Trust," — which now controls a very large proportion of the output. — Ed. 



THE IRON AND COTTON INDUSTRIES 209 

freedom and the means of . transportation that came witli it, 
doubtless constitute the main basis for the growth of the Ala- 
bama iron industry. There are other aspects of it which deserve 
the attentive consideration of the student of social questions, — 
the conduct and the prospects of the negroes suddenly herded 
together in the mining regions, and the relations of the two 
races under the new conditions. But these are matters that lie 
apart from the present inquiry. For good or ill — doubtless, 
mainly for good — the southern iron has taken its place as an 
important part of the iron supply, with the same rapidity, though 
with no such dramatic features, as that smelted in Pennsylvania 
from the Lake Superior ores. 

The southern ore contains phosphorus in too large amounts 
to make it available for the Bessemer process, and this has 
given it a place somewhat apart in the iron industry of the 
country. The iron made from it has not competed witli that 
from the Lake Superior ore, and has been used chiefly for gen- 
eral foundry purposes. Marketed at a very low price, the in- 
creasing supplies have made their way to places further and 
further removed. Pittsburg itself soon used Alabama iron for 
foundry purposes ; the Western States and the Eastern alike 
were supplied ; in New England it displaced Scotch pig, previ- 
ously imported in considerable quantity ; and, finally, it began 
to be exported to England itself. These exports are probably 
not of importance in the permanent current of trade : the iron 
has gone out chiefly in a period of unusually depressed prices, 
and even at this time only as ballast for cotton ships. Beyond 
this strictly limited movement we shall probably see the export 
of iron from the United States, not in its crude form, but in 
much more advanced stages. But this is a subject for later con- 
sideration. It suffices to note here that the possibility of export, 
even at nominal rates of freiglit and in times of exceptionally 
low prices, shows how vastly changed are the conditions from 
those of thirty years ago. 

The outcome of the great changes in the geographical dis- 
tribution of the iron industry is shown in the tabular statement 
on the next page. 



210 



SELECTED READINGS IN ECONOMICS 



Production of Pig Iron in the United States ^ 
{In Thousands of Gross Tons) 



1872 



1880 



1886 



1890 



1895 



1898 



Eastern District (eastern Pennsyl- 
vania, New York, New Jersey) . 

"Western Pennsylvania alone . . . 

Central District (western Pennsyl- 
vania and also Ohio, Indiana, 
Illinois) 

Southern District (Alabama, 
Georgia, Tennessee, Virginia, 
Maryland) 

Other States 

Total for the United States . . 



1217 
387 



849 



127 
356 



1610 

772 



1502 



238 
485 



1312 
1081 



1874 



539 
319 



2342 
2561 



4517 



1554 
790 



1390 
3549 



6019 



1491 
546 



1,431 
4,435 



7,787 



1,785 
770 



2549 



3835 



4044 



9203 



9446 



11,773 



In the Eastern District the output, notwithstanding a great 
increase in the period for which the year 1890 stands, has 
barely held its own. The total production in 1895-1898 was not 
sensibly greater than in 1872. On the other hand, the Central 
District has increased its production steadily and enormously, 
whether in western Pennsylvania itself or in the neighboring 
states of Ohio, Indiana, Illinois. This is the region where Lake 
Superior ore is smelted with Pittsburg coal : in and about Pitts- 
burg itself, in the immediately adjacent parts of Ohio, and at 
the various lake cities where the ore meets the coal, — Cleve- 
land, Toledo, Chicago, and the rest. Not less striking is the 
rate of growth in the Southern District, of which Alabama is 
the most important state. While the total production here is 
far outweighed by that in the Central District, it now exceeds 
that in the East, and bids fair to continue to do so. 

1 In this table the figure for eastern .Pennsylvania is for the iron smelted in 
the state with anthracite, or anthracite and coke mixed, while that for western 
Pennsylvania is for the bituminous (cok6) iron. The separation by fuels, it is 
true, does not indicate with complete accuracy the geographical distribution. 
But the iron smelted in Pennsylvania east of the Appalachian chain was formerly 
smelted almost entirely with anthracite, and is still smelted mainly with a mix- 
ture of anthracite and coke ; and, at all events, this was the only piode in 



THE IRON AND COTTON INDUSTKIE.S 211 

Before we close this review of the forces which have been at 
work in the iron industry, some other aspects of the subject 
deserve brief attention. Here, as elsewhere, the labor situation 
and the trade-union movement have had their influence ; but 
the power of the labor unions among the iron workers has been 
less in the United States than in Great Britain, and this fact 
has been of no small consequence. It is true that the Amalga- 
mated Association of Iron and Steel Workers has long been a 
firm and powerful organization, modeled on the British unions 
and strong in its bargaining with the employ ei'S. But some of 
the large iron and steel establishments have been non-union ; and 
their competition, as well as the example they set of a possible 
cutting loose from the organized laborers, imposed a strong check 
on the union's control of the conditions of employment. The 
largest of the American establishments, the Carnegie Company, 
thus cut loose from the union as a consequence of the great strike 
— fairly a pitched battle — at the Homestead works in 1892. 
The consequence has been that the American iron and steel master 
has felt more free than his British rival to push on with new pro- 
cesses, to remodel his organization, to readjust his labor force. 

No doubt, in the talk of the average business man, there is 
much exaggeration of the dictates of labor unions, and many an 
impossible claim to attend to his own affairs in his own way. 
But, on the other hand, whatever may be one's sympathy with 
labor organizations, it is not to be denied that a firmly organized 
trade union tends to present a stolid opposition to change and 
to improvements. This is but human nature. The first effect 
of a new machine or a better rearrangement is to displace or 
discommode some laborers ; while the disposition to " make 
work," however disavowed overtly, is too deep-rooted to permit 
labor-saving changes to be made without strong though silent 

which the statistics at hand made it possible to separate the eastern and western 
parts of Pennsylvania. 

In the Southern District Virginia and Maryland are near the seaboard, and 
might be constituted a group apart from the other states there included. Hut 
the iron industry in them, as in the others, is of recent growth, and depends 
both for ore and fuel on different sources of supply from those of the northern 
seaboard region. 



212 SELECTED READINGS IN ECONOMICS 

opposition. Even where no open resistance is offered, the mere 
existence of a strong and all-inclusive union, not to be fought 
without heavy loss, has often a benumbing influence, preventing 
the very consideration of radical changes and keeping industry 
in its established grooves. Such has been one of the effects of the 
strong organization of English iron workmen (the engineers) ; and 
the great strike between them and their employers in 1898 was 
at bottom due to this consequence of their strength. For good 
or ill the American iron industry has been comparatively free 
from this benumbing influence : for good, in that the advance of 
the art of production has been unrestrained ; for ill, in that the 
workman, as is inevitable when standing alone, has bargained 
on unequal terms with a powerful employer, and has been com- 
pelled often to accede to long hours and harsh conditions. 

One other of the social aspects in the growth of the iron 
industry deserves attention, — its connection with the coal trade, 
and with some of the labor problems that have arisen in that 
allied industry. The dominant position of the Pittsburg coal 
district has been repeatedly referred to in the preceding pages. 
For the iron trade the most important section of that district is 
the famed Connellsville coke region, lying some fifty miles south 
of Pittsburg, along the banks of the Youghiogheny river. Here 
is a level and uniform outcrop of the best coking coal, and from 
this has come most of the coke used in smelting Lake Superior 
ores, and, indeed, the greater part of that used in the United 
States. Important supplies have come also from other near-by 
regions in Pennsylvania and West Virginia ; and Alabama has 
made from her own coal the coke for smelting her iron. But the 
Connellsville coke is by far the most important contributor, and 
alone supplies more than half of the total used in the country.^ 

1 The output of coke in the United States in 1897 — a year in which Con- 
nellsville turned out less than, its usual share — was as follows (in thousands of 
net tons of 2000 pounds) : 

Connellsville proper 6861 Tennessee" 369 

other Pennsylvania ........ 2106 Virginia 354 

West Virginia 1473 Colorado 342 

Alabama 1443 Elsewhere 

Total United States 13,289 

[In 1905 the output was 24,733,000 tons. — Ed.] 



THE IRON AND ("OTTON INDUSTRIES 213 

The price of coke has gone down markedly in the last twenty 
years, in sympathy with the price of bituminous coal generally. 
Thirty years ago coke at the ovens was sold for -^3 a ton. In 
recent years the price has been on the average not far froiii 'tl.50 
a ton, and in times of depression less than 'fl a ton. Fuel has 
been turned out for the American ironmaster at prices lower 
than those paid by his rivals in any part of the world, while 
low rates of transportation have enabled the cheap fuel to be 
carried to furnaces near and distant without the loss of this 
cardinal advantage. 

Here, as in the mining and transporting of the ore, and in 
the practice at the furnace and the mill, cheapness has been 
secured, but by methods that are, in part at least, vitally differ- 
ent. There has been, indeed, the same bold adventure in open- 
ing new sources of supply, the same conduct of industry on a 
great scale, the same firm organization in direct connection with 
the iron and steel industries. But the nature of the operations 
caused cheapness to be attained at the coal mines and coke 
ovens, not only by machinery and organization but also, to no 
small extent, by cheap labor. The mining of coal is mainly 
pick-and-shovel work, requiring little handicraft skill or trained 
intelligence ; and this is still more true of the work at the coke 
ovens. The coal mines of the United States have drawn to 
themselves the lowest and poorest kinds of manual labor, except, 
indeed, where machines for cutting the coal have proved appli- 
cable, and skilled and intelligent mechanics have consequently 
been called on to work them. The miners in England seem to 
have maintained a better relative position. Their trade organi- 
zation has been strong, the standard of living and of efficiency 
comparatively high. In the United States multitudes of newly 
arrived immigrants have been drawn to the mines, partly through 
deliberate arrangement by the employers, partly through the 
silent adjustment of supply to demand. There they have hud- 
dled, inert, stolid, half enslaved. The nationalities that have 
contributed of late years so heavily to our immigration — the 
Italians, Bohemians, Hungarians, Poles, and what not — have 
here found employment such as they could at once turn to. In 



214 SELECTED EEADINGS IN ECONOMICS 

times of activity their condition is passable, and doubtless bet- 
ter than it had been in their homes beyond the sea. In times of 
depression and low prices the barest living is all they can secure, 
and sometimes not that. The American or Americanized laborers 
of higher standards have met a disheartening competition, and 
have vainly tried to stem the tide of falling wages and half 
employment, with the attendant misery, strikes, riots, bloodshed. 

Here once more we touch phenomena that lie mainly outside 
the scope of the present inquiry. The growth of the coal indus- 
try is a subject by itself, presenting peculiarities of its own. 
"• Over-production " has been its constant cry ; and undeniably 
there has been a pressure on the market of a large and con- 
stantly enlarging supply of coal. The continued opening of new 
mines, with all the chances of reaping a fortune from the com- 
bination of mining and railway ventures, has proceeded with 
feverish and excessive activity ; and, certainly, it is this gilded 
opportunity which has caused the systematic agglomeration of 
cheap labor in the bituminous coal districts the country over. 
It may be, also, that, even under conditions of comparative sta- 
bility (as in the anthracite regions, where no new fields are 
available), the nature of the industry, the extreme difficulty of 
stopping a mine when once in operation, the strong inducement 
to work it continuously at its maximum capacity, — such causes 
as these may lead inevitably and recurrently to mounting out- 
put and cutthroat competition. Both sets of causes probably 
have been at work in bringing about the special severity of 
periods of depression in the coal and coke districts. 

At all events, a bitter competition has intensified the evil 
social conditions which must emerge where great masses of 
ignorant laborers are congested in out-of-the-way places. Truck 
shops, low wages, semi-feudal conditions, cheap coal, have meant 
a cheap man. At the iron mines the conditions seem to have 
favored the better mode of securing cheapness, — vigorous and 
intelligent labor, using highly elaborated machinery. Such, too, 
has been, in greater degree at least than at the coal mines, the 
direction in which improvement has marched in the railways, on 
the vessels, at the docks, in the iron and steel works. But at 



THE IRON AND COTTON INDUSTRIES 215 

the very fountUitioii of the industry, at the coal mine and ihe 
coke oven, we have a social sore. Perhaps it is but temporary ; 
this great and vigorous organism of ours may absorb the foul 
matter, even though it be steadily fed from Avithout by new 
accretions. But foul it is, and remains. When Jevons, a genera- 
tion ago, surveyed, doubtless with some excess of pessimism, the 
coal trade of Great Britain, he warned his countrymen that 
their great structure of material wealth rested on a foundation 
of brutishness and pauperism. We have been wont to thank God 
that we are not as other peoples ; but the plague is on us also, 
and we too must face the social responsibilities it involves. 

Thus the growth of the iron industry illustrates all the 
extremes of the industrial revolution which has taken place in 
the United States since the Civil War. Unfettered enterprise, 
unrestrained competition, have worked their utmost. The eager 
search for new resources in the earth's crust has gone on with 
feverish haste. The march of the arts has led to unceasingly 
wider utilization of the forces of nature. Production on the 
great scale has advanced, until the huge enterprises seem almost 
ready to crush the foundations on which they rest, or topple over 
of their own weight. Fabulous riches and misery and squalor 
most abject alike have come with this marvelous transformation; 
and the twentieth century dawns with new conditions, new 
problems, new duties. 

2. An International Survey of the Cotton Industry ^ 

Among the laiger industrial changes of the last thirty years 
few exceed, in importance and interest, the marvelous growth 
of the manufacture of cotton by machinery. Not only in its 
original seats, but also in reofions where its introduction came 
much later, the industry has expanded wonderfully. The progress 
in the several countries has, however, been far from uniform in 
regard either to its magnitude or to the description and quality 
of the fabrics produced. Nor are the circumstances under which 

1 By Elijah Helm. Reprinted from the Quarterly Journal of Economics, 
May, Ut03. 



216 SELECTED READINGS IN ECONOMICS 

it has been realized at all alike, nor of similar significance when 
they are brought to bear upon the problem of the present and 
future international position. Each case must be separately 
examined ; and we must determine the precise causes of the 
progress, and whether these have exhausted their force, or are 
likely to continue, or to be aided or checked by new influences. 
But a preliminary question arises. The establishment on a 
large scale, in recent years, of cotton mills near to the source of 
the principal raw material, in the American Southern States 
and in India, and its commencement in China and Egypt, have 
encouraged the assumption that the industry must tend to gravi- 
tate more and more to the cotton field. Thus, in his address 
delivered on 22d October last, as rector of the University of 
St. Andrew's, Mr. Carnegie said : 

Capital, management, and skilled labor have become mobile in the 
extreme. The seat of manufacturing is now, and will continue to be more 
and more, simply a question where the requisite raw materials are found 
under suitable conditions. Capital and skilled labor have lost the power 
they once had to attract raw materials ; these now attract labor and capi- 
tal. The conditions are reversed. The cotton industry, for instance, was 
attracted from Old to New England, and is now attracted from it to the 
Southern States alongside the raw material. 

There is much, no doubt, in a merely extrinsic view of south- 
ern and Indian progress to give a certain strong appearance of 
probability to the theory laid down by Mr. Carnegie. The facts 
are before our eyes. Capital and skilled labor have been applied 
on a vast scale to manufacture at the sources of the raw mate- 
rial. But many other things have to be considered before we 
can conclude that this new phenomenon is to be attributed to 
the greater mobility, in recent years, of capital and labor. Raw 
material, too, has become much more mobile. If the cost of 
transporting raw cotton to the older seats of manufacture were 
alone to be taken into account, it would appear that there is 
to-day far more reason for the supremacy of the industry in dis- 
tricts remote from the cotton fields than there was half a cen- 
tury ago. The cost of transport and marketing has been reduced 
to less than one eighth of what it was then. To this extent, at 



THE IRON AND COTTON INDUSTRIES 217 

least, the raw material has become very much more mobile ; but 
this is not the only consideration, and other factors entering 
into the problem will receive attention presently. 

It is commonly supposed that, in the earlier years of the 
mechanical spinning and weaving of cotton, Great Britain had 
for a long time the start before other nations. This belief is 
not strictly accurate. Machinery was used in both branches 
almost if not quite as soon in the United States as in England. 
From priority of establishment, therefore, the English industry 
gained little. Indeed, during the Napoleonic wars at the end 
of the eighteenth and in the earlier part of the nineteenth cen- 
tury, when cotton spinning by steam and water power began to 
be important; the advantage was wdth the Americans, since they 
were then, and for a long time afterwards, free from the heavy 
customs duties on raw cotton and most of the other materials of 
production, — coal, of course, excepted, — besides the excise 
duty on printed cotton goods, which oppressed the spinners 
and manufacturers of the United Kingdom. Moreover, the 
brief war of 1812-1815 between the states and the old country 
gave a strong impetus to the American industry.' The prices 
of cotton goods, on the western side of the Atlantic, rose to 
four times their previous amount ; and cotton-spinning mills 
there were multiplied so excessively tliat, after the restoration 
of peace in 1815, many of them were closed, and became for a 
time almost worthless. In the following year protective duties 
were imposed, mainly by the influence of the southern repre- 
sentatives in Congress, for the purpose of reviving and encour- 
aging home manufactures, the cotton industry of the North 
being mostly opposed to them. Before 1813 steam and water 
power had been applied only to the spinning branch in both 
countries, but in that year the first mechanical looms were 
erected in the United States. Comparatively few were then in 
existence in Europe, and in 181G there were but two thousand 
power looms in Lancashire. 

In Swit'/eiland, France, Germany, and even in Austria, Italy, 
and Belgium also, the factory system of spinning was devel- 
oped almost as early as in (ireat Britain; but weaving by 



218 SELECTED READINGS IN ECONOMICS 

power looms was hardly established in the continental coun- 
tries on an important scale by 1830, except in a few particular 
districts, such as Alsace, the Vosges, Rouen, Elberfeldt, and 
two or three Swiss cantons. This tardier development of 
mechanical weaving on the continent continued long after 
1830, and it has had important consequences, as we shall 
presently see. 

Bearing in mind the fact that, regarded as a completely 
mechanical industry, cotton spinning and weaving had not 
become thoroughly rooted in Great Britain until towards the 
close of the first quarter of the last century, one is drawn to the 
conclusion that at that period it had not gained an appreciable 
priority in time of its American rival. Its position in 1831-1835, 
in relation to the cotton industries of the continent and the 
United States, is approximately indicated by a few figures. In 
those five years the average annual consumption of cotton was : 

Millions of Pounds Per Cent 

United Kingdom 295.2 100 

Continent of Europe 142.7 48.3 

United States ' 78.5 26.6 

So important had been the progress of the industry in 
Europe and America between 1820 and 1835 as to prompt the 
following significant remarks, written in 1836, in the Introduc- 
tion of Dr. Ure's "Cotton Manufacture of Great Britain": 

The encroachment of foreign competition upon the cotton trade of the 
United Kingdom has become so rapid of late as to excite alarm for its 
supremacy, under our heavy taxation, in any mind not besotted by national 
pride. The continent of Europe and the United States of America, for 
some time after the peace of 1815, possessed factories upon so small a 
scale that they could not be regarded as our rivals in the business of the 
world. But now they work up nearly seven Inmdred and fifty thousand 
bales of cotton wool, which is about three fourths of our consumption, 
and have become formidable competitors to us in many markets exclusively 
our own. 

This was written in 1836. Another instance of alarm at the 
supposed relative decline of the English cotton industry occurred 
in that year when the Board of Trade (the official Department 



THE IRON AND COTTON INDUSTRIES 219 

of Commerce) forwarded to the Manchester Chamber of Com- 
merce a number of samples of various descriptions of cotton 
piece goods, including prints produced in Germany and Switzer- 
land. These were examined by a committee, of which Richard 
Cobden, then a director of the Chamber, was a leading member. 
The report shows that he and Ids colleagues were deeply 
impressed by the excellence and cheapness of these produc- 
tions ; and there is conclusive evidence, in a memorial to Par- 
liament which he drafted two years later upon British Customs 
and Excise Policy at that time, that he had begun almost to 
despair of the English cotton industry as a competitor with the 
corresponding industries of the continent, unless the oppressive 
fiscal burdens then laid upon it were removed. But even since 
the advent of free trade fears of approaching decline have on 
a few occasions been expressed more or less loudl3\ 

What is the relative position of the industry in the United 
Kingdom, the continent, and the United States to-day, meas- 
ured by the quantity of raw cotton consumed in each ? In the 
last cotton season — the year ended on September 30, 1902 — 
the consumption in these three great divisions was : 

Millions of Pounds Per Cent 

United Kingdom 1626.5 100 

Continent of Europe 2302.0 147 

United States 2018.5 124 

Judged, therefore, by the test of the amount of raw material 
consumed. Great Britain has fallen from the highest to the 
lowest position within the last seventy years. 

We have, unfortunately, no trustworthy statistics of the num- 
ber of spindles at work in each of these divisions during the 
period 1831-1835. The number now at work, however, it is pos- 
sible to state ; and the result of a comparison presents a striking 
contrast with that just arrived at from the statistics of cotton 
consumption. Here they are : 



United Kingdom 
Continent of Europe 
United States . . 



Cotton-Spinning 
Spindles 


Per Cent 


47,000,000 
33,900,000 
21,550,000 


100 
72.1 
45.8 



220 SELECTED READINGS IN ECONOMICS 

From this point of view Great Britain again takes the first 
place, the continent following second, and the United States 
third as before, though much more closely in both cases. 

The apparent paradox that, whilst still possessing very much 
more spinning machinery than the continent or the United 
States, Great Britain spins very much less cotton than either 
of them is easily explained. The yarn produced in English 
mills is by many degrees finer and of higher value than that 
spun in the mills of the other two regions. English cotton yarn 
has long been growing finer and finer. This change has been 
brought about by two or three causes, but mainly it is a conse- 
quence of the increase of machinery in countries to which the 
coarser British yarns and piece goods were formerly sent. 
Another cause is that the progress of mankind in wealth and 
refinement has encouraged the demand for superior, more varied, 
and more tasteful cotton fabrics, requiring for their production 
finer yarns. For the spinning of these, and in a great degree 
for the weaving of the superior fabrics, the climate and the 
training and skill of the managers and work people, as well as 
the industrial and commercial organization of the English 
cotton trade, have proved themselves admirably adapted. 

The rapid progress of cotton spinning on the continent dur- 
ing the last fifty years is to be accounted for, in part, by the 
great industrial and commercial awakening which followed the 
settlement of the Franco-German conflict. The new spirit was, 
of course, most powerful and most effective in Germany ; but 
it pervaded the rest of the nations, and one of its fruits was a 
larger demand for labor, a rise of wages, and a great uplifting of 
the material condition of the people. To this were added increase 
of population and vast improvements in the means of trans- 
port, aided by the important easing of the customs-tariff restric- 
tions, which, before 1860, had impeded international commercial 
intercourse between the European countries. It is true that after 
the Franco-German War a powerful protectionist reaction set in, 
which became still stronger in 1878, when Prince Bismarck gave 
it the countenance of his powerful authority. Thirteen years 
later, however, a more liberal commercial policy supervened, 



THE IKON AND COTTON INDUSTRIES 221 

which, under the impulse of Gepman initiation and guidance, 
resulted in the series of European treaties of 1891. On the 
whole, notwithstanding some serious backsliding, the customs 
arrangements of the European states during the last forty years 
have not entirely lost the impress of the Anglo-French treaty of 
1860, negotiated by Richard Cobden. When contrasted with 
the highly restrictive and, in some respects, prohibitory system 
previously existing, the regime which has since prevailed has, 
reactions notwithstanding, been exceedingly favorable to inter- 
national commerce in Europe. 

All these considerations bear with special force upon the 
question of the great progress of the continental cotton indus- 
try, because its productions are almost entirely consumed 
within the boundaries of Europe. Of a very few special kinds 
of cotton goods moderate quantities are sent to other parts of 
the world, but in relation to the whole they are of trifling 
account. Regarded in its entirety, the continental cotton indus- 
try must be considered a home-trade industry ; and its great 
expansion within the last half-century must be attributed mainly 
to the enlargement of the home market. 

But there is another contributory cause which is of great sig- 
nificance in estimating the present position and the prospects 
of the continental cotton industry. Before 1870 the process of- 
substituting power-loom weaving for the hand-loom method had 
made relatively very moderate progress in Europe outside the 
United Kingdom. In the latter the cotton hand loom had quite 
disappeared ; and in the United States it survived, as a remnant 
only, in the mountains of Kentucky and Tennessee and in iso- 
lated spots in the Southern States. But among the continental 
nations the handicraft weaving of cotton was widely prevalent, 
not only as a domestic but also as a semi-factory system. Within 
the last thirty years it has been steadily giving way to the power 
loom, yet it is even now very far from being extinguished. In 
Russia the number of hand looms weaving cotton goods is still 
enormous ; in Austria there are forty thousand of them ; and in 
Germany, France, Italy, Spain, and the Balkan countries many 
thousands are at work. Now the effect of the substitution of 



222 SELECTED READINGS IN ECONOMICS 

the mechanical for the hand loom since 1870 on the continent 
has been the same as that of the like change in Great Britain, 
which was completed before that year. It reduced greatly the 
prices of woven goods, and their cheapness, together with the 
other economic developments already referred to, stimulated 
the demand for them enormously ; and the satisfaction of this 
enlarged requirement involved the necessity of a much greater 
supply of yarn ; hence the very rapid addition to the number 
of spindles and the consumption of raw cotton. Before the 
Franco-German War of 1870-1872 the quantity used by the con- 
tinental mills had never reached eight hundred million pounds. 
Since then the progress has been almost continuous, — at all 
events until the season 1898-1899, when it was suddenly arrested. 
The successive upward steps and the movement since 1898—1899 
are sufficiently indicated by the annexed table : 

Continental Consumption of Cotton 

Seasons Pounds 

1898-1899 .... 2,392,000,000 

1899-1900 .... 2,288,000,000 

1900-1901 .... 2,288,000,000 

1901-1902 .... 2,392,000,000 

Between 1872-1873 and 1882-1883 the increase was at the 
rate of 55,320,000 per annum; between 1882-1883 and 1892- 
1893, at the rate of 47,120,000 per annum ; between 1892-1893 
and 1897-1898, at the rate of 88,400,000 pounds per annum ; 
and last season the increase was 104,000,000 pounds. Thus the 
highest level was reached three years ago. In considering these 
figures it is interesting to note that English textile engineers, 
who have supplied the bulk of the spinning machinery for the 
continental mills, have received exceedingly few orders since 
1899, and those chiefly from France, for the equipment of new 
spinning establishments in foreign Europe. It is further to be 
observed that at the end of last season the stocks of yarn held 
in nearly every spinning district of the continent were very 
heavy, — a fact which proves that the enlarged consumption of 
1901-1902 was excessive. 



Seasons 


Pounds 


1872-1873 . . 


. . 821,600,000 


1882-1883 .. . 


. . 1,374,800,000 


1892-1893 . . 


. . 1,846,000,000 


1897-1898 . . 


. . 2,288,000,000 



THE IKON AND COTTON INDUSTRIES 223 

Even the foregoing remarkable figures do not tell the whole 
story of the extraordinary growth in the consumption of cotton 
fabrics in continental Europe during the last thirty years. So 
great was tl)9 pressure of the demand for yarn to supply the 
steadily increasing number of power looms that mucli larger 
quantities of it were imported from England. For the following 
figures I am indebted to Mr. Thomas Ellison, of Liverpool ; 

Exports of British Cotton Yarn to Europe 

(European Turkey excluded) 

Years Poinds Years Pot nds 

1830 5(i,000,000 1890 123,700,000 

1840 91,000,000 1895 127,400,000 

1850 00,700,000 1897 121,100,000 

1860 116,000,000 1899 104,000,000 

1870 93,700,000 1900 79,500,000 

1880 96,100,000 1901 78,500,000 

These statistics of the continental takings of cotton and of 
English yarn are highly instructive in so far as they illustrate 
the economic progress of the European populations since 1872. 
They afford, of course, no means of discovering how much of 
the increase is to be attributed to each of the several stimula- 
ting influences previously mentioned. The halt which occurred 
after 1898-1899 excites inquiry as to its causes. In part, no 
doubt, it is explained by the German and Russian financial 
troubles and the consequent depression of trade throughout the 
greater portion of the continent during the last two years. I 
am inclined to think, however, that the arrest of the progress 
three years ago is largely due to the diminished force of the 
special stimulus springing from the substitution of power for 
hand looms. If this be a correct opinion, it warrants the expec- 
tation that, in the absence of any new impulse, the increase of 
cotton spinning on the European continent will be very much 
slower in future than it has been during the last thirty years. 

But a further question confronts us. May not the check to 
the increase in the ivehjht of cotton and yarn consumed be due 
very much to the same cause as that to Avliicli the same feature 



224 SELECTED READINGS IN ECONOMICS 

in the British consumption is to be ascribed, namely, the spin- 
ning and weaving of finer counts of yarn ? Undoubtedly, more 
fine yarn is being spun, in Germany and France at least, than 
in 1880; but in spite of the customs tariffs of these countries, 
in respect of cotton yarn, being especially designed to encourage 
the production of the finer numbers, climatic and other difficul- 
ties have so far prevented any extension of this branch of the 
industry at all comparable to that which has been accomplished 
in the spinning of the lower and medium counts. It is certainly 
true that the average fineness of the yarn shipped from England 
to the continent is very much higher than it was twenty-five 
years ago. Indeed, it is a common expression amongst Man- 
chester merchants engaged in this trade, " The continental 
demand for low counts is gone." 

Within the last two years the erection of new cotton-spinning 
machinery on the continent has greatly diminished. During 1902 
the total number of spindles remained unaltered or was but 
slightly augmented in every country except France, and even 
there the increase was only about two hundred thousand. In 
part, no doubt, and perhaps greatly, the arrest of progress thus 
indicated must be traced to the German financial crisis of 1900, 
and the consequent depression of trade there and in surround- 
ing states, as well as to the contemporaneous financial and in- 
dustrial troubles in Russia. But since the rapid expansion of 
spinning capacity between the years 1880 and 1900 was undoubt- 
edly due very much to the substitution of power looms for hand 
looms, it is a reasonable inference that, even after the effects 
of the financial disturbances have passed away, the rate of 
progress will diminish. 

Assuming that the force of this special and incidental impetus 
to the continental cotton-spinning industry is now becoming 
spent, a further question arises. Is it not probable that the 
production of the spindles and looms of some at least, if not 
all, of the continental nations will begin to compete seriously 
in the extra-European markets? All that can be said on this 
subject at present is that there is no obvious reason why it 
should do so, apart from some kind of state aid or the pressure 



THE IKON AND COTTON INDUSTRIES 225 

of temporarily overstocked home markets. To one or other of 
these adventitious forms of assistance the export of an appreci- 
able proportion of the continental cotton goods now finding 
their way into neutral markets must be ascribed. This fact is 
of itself highly significant, for it shows that, although there are 
a few special descriptions which can be exported in open compe- 
tition and under natural conditions to such markets, the pre- 
vailing circumstances are not at all extensively favorable to the 
creation of an important export of cotton manufactures from the 
European countries, in competition with England, not to speak 
of the United States, to which attention must now be directed. 

Writing upon the United States cotton industry mainly for 
American readers, I am conscious of approaching the subject 
with some diffidence. Yet, having gathered much information 
about this and other American economic questions by long ob- 
servation, by strong sympathy with the American people, and 
by conversation and correspondence with well-informed citizens, 
I hope I may be found reasonably free from important error. 

The chief interest of the progress of the American cotton-mill 
industry in recent years lies in its amazingly rapid growth in 
the Southern States. Before the Civil War of 1861-1865 there 
were very few mills in that section of the country. For well- 
known social and economic reasons organized manufacture could 
not flourish in the midst of slavery. Yet in the year 1847-1848 
their consumption of cotton was 75,000 bales against 532,000 
bales in the North, and in 1860-1861 it was 193,000 bales 
against 650,000 bales. Now comes a remarkable fact. In the 
latter year, just before the war broke out, one half of the popu- 
lation of the Southern States — that is to say, about 5,000,000 
people — were clothed in hand-woven cotton goods. In 1870, 
five years after the war, not less than 3,500,000 were thus 
clothed. These are the estimates of my friend, Mr. Edwaid 
Atkinson, of Boston, — than whom, I believe, theie is no higher 
authority, — founded upon extensive correspondence and con- 
versation with many old planters, merchants, and other well- 
informed persons in the Soiitli, and confirmed by his own 
abundant knowledge. In 1880 there was still a considerable 



226 SELECTED READINGS IN ECONOMICS 

remnant of this domestic manufacture in the mountains of 
Kentucky and North Carolina, where it had long been exten- 
sively carried on. It was the last survival of a handicraft indus- 
try once prevailing throughout the states, and from that region 
the labor force of the southern cotton mills was drawn for many 
years after the war. The people, all whites, having acquired the 
deftness necessary in the handling of threads, supplied a suit- 
able class of operatives for the mills. These, however, did not 
increase very rapidly until 1879. Since then their progress 
presents one of the most remarkable incidents in the history of 
the world's cotton trade during the last twenty years. 

This marvelous development may be traced to a concurrence 
of forces. Until 1875 the spinning mills were largely engaged 
in producing yarn, partly for the hand looms of the South, then 
gradually disappearing, and partly for the power looms which 
were superseding them, and were requiring more and more 
liberal supplies. According to the census of 1879-1880 there 
were 12,360 power looms in the southern mills, but in 1900- 
1901 the number was 122,902, and it is considerably greater 
now. Within the same interval of twenty-two years the num- 
ber of spindles in the South increased from 561,360 to 5,819,- 
835. The rate of expansion was thus almost equal in the two 
departments ; but the substitution of machine for hand-loom 
goods was probably all but completed between 1885 and 1890. 
This operation brought with it as a consequence, just as it did 
in Europe, reduced prices of cloth and an enlarged consump- 
tion, which was further promoted by the great growth of popu- 
lation, owing partly to natural increase and partly to immigration 
from the North. But within the last fifteen or twenty years 
another and a very important new field of distribution for 
southern cotton goods has been opened out in eastern Asia and 
elsewhere abroad. Still further, the cloths made in the South, 
which are of coarse texture, have competed increasingly in 
recent years with the production of the New England manu- 
facturers, compelling them to devote their attention more and 
more to the finer and more highly finished descriptions, which 
are not yet made in the South. 



THE IKON AND (^OTTON INDUSTEIKS 227 

The deliberate opinion of Lancashire manufacturers who, 
within liie hist twelve months, have visited the United States 
for the j)urpose of investigating the cotton industry is that 
they have nothing to fear from the competition of the North. 
In the South, however, one item in the cost of production — 
that of labor — threatens, they think, rather seriously not only 
their own (the Lancashire) position, but also that of the 
manufacturers of the Northern States. The rates of wages in 
relation to the quantity produced are not more, comparing 
the same classes of goods, than from one third to one fourth 
of those prevailing in Lancashire and in New England, which 
are approximately the same, although often the North Ameri- 
can piece rates of wages are slightly lower than the English. 
How is it that in one part of the same country a sufficient 
supply of labor can be obtained at piece-work rates so greatly 
below those paid in another part? The answer is highly inter- 
esting. Some of the workers have come, as already stated, 
from the mountain districts of Kentucky and North Carolina, 
where they formerly made a scanty living by hand-loom weav- 
ing, eked out perhaps by the cultivation of the soil on a small 
scale. Others are drawn from the families of poor farmers who 
have settled in the South since the war. In both cases the 
remuneration offered in the mills was so much better than their 
previous scanty earnings as to induce them to adopt the more 
remunerative calling. There is good reason to believe, how- 
ever, that this disparity of labor cost cannot be very long main- 
tained. The scarcity of adult work people has become so 
urgent that the working force of many mills consists, to an 
astonishing extent, of little children of eight to ten years old. 
Immature labor of this kind cannot be very long continued, 
nor is it likely that rates of wages so greatly below those pre- 
vailing in the North can remain unaltered for any considerable 
time. I am told, moreover, by visitors to the states, who have 
returned to England within the last month, that the cotton 
manufacturers of the Northern States entertain no serious ap- 
prehensions with regard to the permanence, or at any rate the 
increase, of southern competition. 



228 SELECTED EEADINGS IN ECONOMICS 

But there is apparently another contributory cause of the 
extraordinary spread of cotton mills in the South. Far more 
extensively than in the North the employment of the new 
" automatic " loom prevails there. Calling for less labor, atten- 
tion, and skill on the part of the operative, the American type 
is very well suited to the kind of weaving characteristic of the 
South. These machines, employed upon such work, go far 
towards justifying their descriptive name ; and a single weaver 
is able to look after three times as many of them as of the 
ordinary loom. Hence the labor cost of each piece of cloth is 
enormously reduced. 

Upon one important difference between American and English 
methods of weaving some discussion is just now going on in 
Lancashire. In this country cotton looms are run at a speed 
averaging from 15 to 20 per cent higher than in the United 
States, yielding therefore a larger production, at the expense, 
however, of greater strain upon the yarn, more frequent break- 
ages of threads, and stoppages of the machine. The question is 
whether or not it would be better to reduce the speed so as to 
enable the weaver to take care of more looms. The lessened 
product per loom would of course involve increased cost of 
production for fixed charges ; but this might be more than com- 
pensated by lowering the piece rate of wages without any loss 
of earnings to the weaver, who would increase his individual 
output by being able to tend a larger number of looms without 
additional exertion. 

The main interest of the subject of American competition 
with British cotton manufactures centers in foreign and colonial 
markets. There can be no doubt that to some of them certain 
descriptions of American goods are going in increased quantity. 
We know, moreover, that in one market, that of China, sheetings, 
drills, and jeans from the United States have, within the last ten 
years, taken a larger place than British makes of these classes. 

One cause of this change has recently been practically re- 
moved, — the very much higher freights charged for the carriage 
of goods to Shanghai from British ports than from New York. 
Another cause is the excessively low labor cost of production in 



THE IRON AND COTTON INDUSTRIP:S 229 

the American Southern States. It is the production of these 
very classes of manufactures, so extensively produced there, 
wliich has gone to swell greatly in recent years the exports 
from America to China. The cure for this particular inequality 
is simply a matter of time ; for it can only come about by the 
play of economic forces which, though slow, are sure. 

Before attempting to summarize salient points in the British 
position, it is desirable to refer to the machine-cotton industry 
of the East, — of India, Japan, and China, — where the conditions 
are widely different from those of the European and American 
industries. The manufacture of cotton began in Asia, whence 
it was brought to Europe in its handicraft state. Within the 
last half century Europe has given it back to Asia as a machine 
industry. The first Asiatic cotton mill was established in the 
island of Bombay in 1851. It contained 26,000 spindles, and 
no looms. In 1871 the number of spindles in all India was 
about 430,000, and there were 5575 power looms. Twenty 
years later (in 1891) the number of spindles had reached 3,250.- 
000, and of looms 23,000 ; and now there are about 5,000,000 
spindles and 41,000 looms. In the United Kingdom the number 
of cotton spindles is approximately 47,000,000, and of looms 
750,000; that is to say, one loom for every 62.6 spindles. In 
India the proportion is one loom to 122 spindles. The differ- 
ence is significant, because it shows that machine spinning has 
made much moie rapid progress in India than machine weaving. 
The old s{)inning wheel has not quite disap[)eared, but it is very 
nearly extinguished ; and yet there are countless numbers of 
wooden hand looms still at work in nearly all parts of the 
country, resisting alike the competition of the coarse productions 
of the native mills and of the finer goods imported from England. 
The records of the Indian government may be searched in vain 
for definite statistics of the handicraft weaving industry, but 
the census returns of the occupations of the people and the 
famine reports supply information enough to show that hand- 
loom weaving is still carried on to a vast extent in every prov- 
ince. In a statement issued by the India Office in 1885 it was 
estimated that not less than 84 per cent of the 1,011,815 pounds 



230 SELECTED EEADINGS IN ECONOMICS 

of raw cotton grown in the Punjab was spun and woven there 
in the homes of the people. But, undoubtedly, the Indian mills 
were for many years after their inception engaged mainly in 
displacing the old indigenous handicraft industry ; and the 
process is still going on, though now very slowly. 

But within the last twenty-five years the product of the Indian 
spinning mills has found a very large outlet in other parts of 
Asia, especially in China. In the year ended March 31, 1880, 
the total export of Indian yarn was 25,862,474 pounds, of which 
22,567,297 pounds went to China. In 1899-1900 the total 
amount was 240,693,027 pounds, of which the proportion taken 
by China was 231,570,757 pounds. Within twenty years the 
outside demand for Indian cotton yarn was multiplied more than 
nine and one half times, and the China demand more than eleven 
times. The political disturbances in the Far Eastern Empire have 
so greatly interrupted its foreign trade during the last two 
years that the statistics of this trade since 1890 are not instruct- 
ive for the present purpose. It is quite clear, however, that 
the Indian cotton-spinning industry owes its remarkable prog- 
ress quite as much, to say the least, and probably more, to the 
great opening for its product in China than to the enlargement 
of the market in India. The yarn was wanted there, of course, 
because it was very much cheaper and better than the old hand- 
spun yarn made from Chinese cotton, which is weak and short 
in staple, and can be spun by hand only at great cost. 

India has never sent to Japan any considerable quantity of 
yarn. In 1879-1880 the amount was 1,814,090 pounds, and in 
1899-1900 only 180,000 pounds. But in Japan a very extensive 
cotton-spinning industry has arisen, which is also largely engaged 
in supplying the China market. The number of spindles in 
the Japanese mills is now about 1,250,000, — one fourth of the 
capacity of the Indian establishments ; and Japanese competition 
has arisen in spite of the fact that the greater part of the raw 
material which they use is imported from India itself. To a 
large extent Japanese yarn is used to supply the native hand 
looms of Japan, for there are few power looms yet in Japan ; 
but much of it is sent to China, where it is welcomed as a rival 



THE IRON AND COTTON INDUSTRIES 2oI 

to the Indian product. But in China itself an attempt has been 
made, within the last eight years, to establish a cotton-spinning 
mill industry, mainly by Europeans, who argued that if India 
and Japan could find so large a market for their yarn in China, 
there must be room for a spinning industry there. Tlie result 
of this new departure has not been at all encouraging. Chinese 
cotton is of poor quality ; and it is by no means certain that, 
even if it could be improved, native labor would be found any- 
where nearly as efficient as is that of India or Japan. The toteil 
capacity of the cotton mills of China is probably not more than 
seven hundred thousand spindles ; and the capital invested in 
them has, on the whole, proved so unprofitably employed that 
no extension is now going on, and none is contemplated. 

Reverting to the Indian cotton industry, it must be observed 
that the consequences of its creation have been very important 
from an international point of view. One of its earliest results 
was to substitute machine-made yarn and cloth for the handi- 
craft product within the country itself. In this respect it fol- 
lowed precisely the course observable in all countries where 
cotton mills have taken root. But it would be a great mistake 
to suppose that the ancient domestic cotton weaving of India, 
or even the employment of the hand spinning wheel, has dis- 
appeared. On the contrary, there is abundant evidence, as 
already stated, that hand-loom weaving is still carried on very 
extensively indeed in certain provinces. The next result was 
the supply, on a very extensiv'e scale, to other parts of Asia, 
and particularly to China, of cheap and good Indian yarn for 
the consumption of the native hand looms. The current in this 
last-named direction has been seriously disturbed within the 
last two years by political events in China, and the proprietors 
of the Indian mills have had to pass through very trying times. 
Their ill fortune has been greatly aggravated by deficient rain- 
fall in India and a serious reduction in the supply of cotton. 
For these reasons many of the Indian spinning companies have 
had to face serious losses; and a few of them 'have been forced 
into liquidation, prominently some of the Bombay companies, 
whose production has hitherto gone chiefly to China. 



232 SELECTED EEADINGS IN ECONOMICS 

Briefly stated, the conclusions to which I have been brought 
by a careful study of the machine cotton industry in Asia are : 
(1) that although wonderfully rapid during the last thirty or 
forty years, it has not only been extensively engaged in substi- 
tuting machine for handicraft production, but also in displacing 
English imports of coarse yarn ; (2) that the progress has not 
gone very far at the expense of the hand-loom weaving branch, 
which is still able to hold its ground very successfully, notwith- 
standing the establishment of about forty-three thousand power 
looms in India and China, whilst Spain, one of the most back- 
ward countries in Europe industrially, possesses nearly seventy 
thousand ; (3) that there is no present prospect of either India, 
Japan, or China being able to compete successfully with the 
European and American cotton industry in the production of the 
finer yarns and the higher qualities of piece goods ; and (4) that 
the main hope of India and China in this field lies in the gradual 
disappearance of handicraft manufacture, in which, however, 
there are great possibilities of expansion, but always within the 
limits of the coarser and cheaper qualities. Perhaps some excep- 
tion to this last statement should be made in the case of Japan, 
whence some excellent specimens of woven goods have already 
made their way into the markets of the Far East. In Japan, how- 
ever, the power loom has as yet made very little progress, most 
of the piece goods produced there being made in hand looms. 

There remains the question how far the extraordinarily rapid 
development of the machine cotton industry has affected, and is 
likely to affect, the demand for European and American — 
particularly English — cotton goods and yarns in Asia. It is 
quite certain that the imports into India, and also into China 
and Japan, of the coarser counts of English yarn have greatly 
fallen off within the last twenty years. The supply of the finer 
English spinnings to all these countries is, however, fairly well 
maintained ; and the following figures show that the imports 
into India of all kinds of cotton yarn are still on the whole 
considerable, and that the decrease within the last ten years, 
though great, has not been alarming, in view of the persistence 
of plague and famine since 1899. 



THE IRON AND COTTON 1NDU8T1UES 



233 



Imports into India of Cotton Yarn 



Year Ending 
March 31 



Pounds 



Ykak Knding 

RlAKCH 31 



Pounds 



1800 46,382,525 

18H1 50,970.950 

1892 50,404,318 

Annual average . . . 49,252,598 



1900 42,621.854 

1901 34,803,334 

1!K)2 38,299,409 

Annual average . . . 38,574,856 



The imports of piece goods into India have actually ineieased 
within the decade, notwithstanding the depression occasioned by 
the plague and the successive famines. The extent of the 
increase is shown in the following table : 



Imports into India of Cotton Piece G-oods 



Gray : Yards 

1890 1,257,001,362 

1891 1,280,539,631 

1892 1,173.176,482 

Annual average 1,236,905,825 



Yards 

1900 1,274,912,153 

1901 1,192,173,060 

1902 1,186,764,255 

Annual average . 1,217,949,822 



Bleached : 

1890 339,098,094 

1891 373,148,661 

1892 361,394,837 

Annual average 357,880,530 



1900 

1901 

1902 

Annual average 



444,546,485 
467,482,379 
580,088,497 
497,371.120 



Colored : 

1890 400,949,291 

1891 360,335,370 

1892 348,116,6 80 

Annual average 369,800,447 



1900 

1901 

1902 

Annual average 



471,884,268 
343,164,775 
422,860,841 
412,636,628 



Ail Kind.s : . . . . 

Anncal Average Anniai, Average 

1890-1892. . . . 1,964,586,802 1900-1902 .... 2,127,957,570 

Increase in 1900-1902, 163,370,768 

It is evident that, in spite of the disastrous experience of 
India during the last three years, and of the efforts of the Indian 
mills to find outlets in the Dependency itself for the surplus 
production, enforced by the partial loss of the China market, 



234 SELECTED EEADINGS IN ECONOMICS 

English cotton goods have not ceased to make their way in 
greater quantity to India, where also certain kinds of American 
goods are used, though not in large quantity. 

Occasional reference to the progress and condition of the 
British cotton industry has already been made, at some length, 
in the preceding portion of this survey. It remains to state the 
writer's view of it more fully in a general summary of the 
international position. The spinning and weaving of cotton in 
Great Britain by modern machinery began under very adverse 
circumstances. Prolonged and devastating war, profuse national 
expenditure and all its consequences, heavy taxation and other 
exhausting sacrifices, prohibitions and fiscal barriers to inter- 
national trade in other countries, poverty amongst the English 
people, and scanty capital in the hands of manufacturers were 
the attendants of its birth and its years of youth. All these 
obstacles it survived, although the raw material of the industry 
was entirely brought from distant lands. In spite of all these 
seeming obstacles the industry rapidly rose to the foremost 
position. The later progress of the industry in other countries 
has practically extinguished most of the branches of business 
upon which its earlier success was founded. Nevertheless it 
has continued to increase, and is still increasing. Foreign com- 
petition, resulting from natural development or from artificial 
protection, has impeded, but it has not stopped, its progress ; 
and there is no evidence of its decay or decadence. It has the 
advantage of a highly favorable climate in Lancashire, a well- 
trained and industrious body of work people, directed by experi- 
enced management, and supported by an admirable commercial 
organization which embraces every market in the world. Added 
to these favorable factors, it has a fiscal system which enables it 
to obtain all the materials and accessories required in the in- 
dustry at the lowest possible prices, — lower, indeed, on the 
whole, than its competitors in other countries can command. Its 
principal raw material has to be brought from sources thou- 
sands of miles away, and yet this important disadvantage has 
been enormously lessened since it was established. Free com- 
petition is its accustomed atmosphere ; and, in spite of hostile 



TJIE IRON AND COTTON 1NDUSTRIP:S 235 

foreign customs duties upon its productions, it still survives 
and grows. Whatever future changes may occur, therefore, to 
help or hinder its course, there is no reason to doubt, still less 
to despair, of its future, so long as it is allowed to enjoy the 
benefits of free trade. 

The obstacles to the prompt adoption of improvements in 
machinery and methods, which arise in a few British industries 
from labor organizations, are not likely to seriously impede their 
introduction into the British cotton manufacture. For the most 
part, wages are paid on a piece-work basis ; and there is no 
restriction upon output other than that imposed by the factory 
acts. There are, of course, always questions of adjustment of 
the piece-work rates whenever new machines are brought in 
which increase the amount of production whilst lessening the 
call upon the labor or attention of the work people. These are 
settled, usually, on the principle of dividing the pecuniary 
advantage of the improvement between employer and employee. 
At the present moment a question of this kind has arisen in 
connection with " automatic looms," the use of which is only 
now becoming a practical consideration in Lancashire cotton 
mills. The weavers' trade unions have fully recognized the 
necessity of adopting one or more of the various inventions 
connoted by the term " automatic loom," and they are aware 
that the economy resulting from their emplo3'ment must be 
shared by the proprietors of the mills. The proper apportion- 
ment of the advantage will, no doubt, give rise to serious discus- 
sion and, it may be, to some conflict; but there is nothing in 
the disposition of the two sides to justify the least fear that this 
will impede the introduction of this or any other improvement 
in the processes of the industry. 



CHAPTER VIII 
HUMAN WANTS AND THEIR SATISFACTION'. 
1. Human Wants: A General Survey^ 

Life in every form with which we are acquainted is subject 
to waste and repair. The living structure in no case continues 
unchanged, but is maintained by a series of reparative acts. If 
any of these acts be discontinued, life ceases and the organism 
quickly disappears. In the case of animal life, provision is made 
by the agency of pleasure and pain for securing the proper 
supply of reparative material. Every animal is possessed of 
sensibility ; and the acquisition of those materials which are 
necessary to keep in activity its vital powers is attended with 
pleasure, while the privation of them involves an equally dis- 
tinct pain. Food, drink, air, and warmth are the most urgent 
of these necessities. If these or any of them are withheld beyond 
a certain small degree or a certain brief time, the animal must 
die. These necessities man shares with all other animals. He 
must have a constant supply of pure air ; he must have a suffi- 
ciency of such food and drink as his organs can assimilate. In 
colder climates at least, since nature has not furnished him with 
the protection that the lower animals enjoy, he must have more 
ample means than they require of retaining the vital heat. If 
any of these essential conditions be unfulfilled, the human animal, 
like any other animal, must die. If they be but partially ful- 
filled, his powers, whether muscular or nervous, are proportion- 
ately feeble. If he has complied with all these conditions of his 
existence, these powers are in a proper state for their due exer- 
cise. The satisfaction, therefore, of his primary appetites is 
imperative upon man. Of all his wants, they are the first in 

1 By W. E. Hearn, Professor in the University of Melbourne. From Plutol- 
ogy : or the Theory of the Efforts to satisfy Human Wants [Melbourne, 1864]. 

236 



HUMAN WANTS AND THEIK SATISFACTION 237 

the degree of their intensity ; and in the order of time they are 
the first which he attempts to gratify. 

But while the superior organism thus possesses all the desires 
that belong to the inferior, it has also, by virtue of that superi- 
ority, many more. Man has not only the mere animal faculties 
and their corresponding wants : he has also, beyond all other 
creatures, other faculties, which, besides their own requirements, 
seriously affect the gratification of the primary appetites ; for 
man is able not merely to satisfy his primary Avants, but to 
devise means for their better and more complete gratification. 
The food of the dog or of the horse of our time is, except where 
it has been modified by man, the same as that of the dog or the 
horse a thousand years ago. The bee constructs its cell, the 
spider spins its web, the beaver builds its dam, with neither 
greater nor less skill than that with which bees and spiders and 
beavers in all known times have worked. In the quality of their 
work, in the kind of material they employ, in the modes in which 
they deal with those materials, there is no improvement and 
there is no decline. IMan alone, of all known animals, exhibits 
any such improvement. He alone has cooked his food. He alone 
has infused his drink. He alone has discovered new kinds of 
food or drink. He alone has improved the construction of his 
dwelling, and has provided for its ventilation. He alone clothes 
his body, and varies that clothing according to the changes of 
temperature or his own ideas of decoration. He alone is not 
content with the mere satisfaction, in whatever manner, of his 
physical wants, but exercises a selection as to the mode of their 
satisfaction. So strong in him is this tendency to the adaptation 
of his means that, in favorable circumstances, he regards the 
preparation of the objects which are intended for his gratifica- 
tion as of hardly less importance than the gratification itself. 
Thus the comparative range of human wants is rapidly increased. 
When the question of degree is admitted in the satisfaction of 
the primary appetites, and when the greater or less adaptability 
of various objects to satisfy these appetites is recognized, the 
extent of human desires is bounded only by the extent of 
human skill. 



238 SELECTED READINGS IN ECONOMICS 

As the attempt to satisfy the primary appetites thus gives 
rise to new desires, so the actual increase of these desires tends 
of itself to a still further development. The enjoyment that a 
man has once received he generally desires to renew^ The mere 
repetition soon becomes a reason for its further repetition. By 
the powerful influence of habit the desire becomes a taste, and 
the taste quickly passes into an absolute want. Nor is this all. 
The mere exercise of the faculties strengthens them, and gives 
rise to a comparison of results and a desire for further improve- 
ment. The man whose senses are educated to a certain point, 
who has had to a certain extent experience of different modes 
of satisfying his desires, and has formed a judgment upon the 
comparative efficiency of these modes, will seldom, in favorable 
circumstances, stop at that point. Not merely would a return to 
what pleased his untaught faculties be intolerable to him, but 
the actual enjoyment which he derives from his discovery stimu- 
lates him to further advances, and suggests the modes of obtain- 
ing them. Thus while man is not guided and limited by a blind 
instinct, but each individual is left free to rise or fall according 
to the exercise of his powers, provision is made, even in the 
primary wants of our nature, both to prevent the retrogression 
of the species and to secure its advancement. The number of 
wants that belong to this class is therefore limited, as I have said, 
by our knowledge of the properties of matter or of material 
objects fitted to satisfy our wants, and by our skill in their 
adaptation. This knowledge and this skill continually increase ; 
and as the limit they present recedes, the range of our tastes 
and of our artificial wants increases with them. 

These principles may be readily verified. It needs no elabo- 
rate proof to show that men constantly desire an increase of 
physical comforts ; that when they have acquired such comforts 
they are pained at their loss, but that their acquisition does not 
prevent them from continuing to desire a further increase. The 
universal experience of mankind is conclusive on these points. 
We feed and clothe and lodge our felon in a way that, to an 
Australian black fellow, would seem an unspeakable luxury. 
The mechanic that daily complains of his hard lot would be 



HUMAN WANTS AND THEIK .SATISFACTION 2oU 

shocked if he were reduced to use no better light, or no more 
convenient measure of time, than tluit by which Alfred wrote 
and by which he distributed his labors. Two pounds of tea 
were presented to Charles II as a present worthy of a king. A 
century afterwards the steady perseverance of the Americans 
in abstaining from their unjustly taxed tea was rightly regarded 
as the most remarkable case of national self-denial that history 
records. Tobacco was unknown to our ancestors, and even now 
is unused by not a few ; yet its deprivation was, in the eyes of 
the Irish pauper, the most cruel aggravation of workhouse con- 
straint. " It is a phenomenon," says Bastiat, " well worthy of 
remark, how quickly, by continuous satisfaction, what was at 
first only a vague desire quickly becomes a taste, and what was 
only a taste is transformed into a want, and even a want of the 
most imperious kind. Look at that rude artisan : accustomed 
to poor fare, plain clothing, indifferent lodging, he imagines he 
would be the happiest of men, and would have no further desires, 
if he could but reach the step of the ladder immediately above 
him. He is astonished that those who have already reached it 
should still torment themselves a§ they do. At length comes 
the modest fortune he has dreamed of, and then he is happy — 
very happy — for a few days. For soon he becomes familiar 
with his new situation, and by degrees lie ceases to feel his 
fancied happiness. With indifference he puts on the fine cloth- 
ing after which he sighed. He has got into a new circle, he 
associates with other companions, he drinks of another cup, 
he aspires to another step, and if he ever turns his reflections 
upon himself, he feels that if his fortune has changed, his 
soul remains the same, and is still an inexhaustible spring of 
new desires." 

There are other important respects in which human wants 
differ from those of the inferior animals. In addition to those 
primary appetites whicli he shares with the huml)lest living 
creature, and which relate exclusively to tilings, man lias also, in 
a peculiar degree, affections which relate to persons ; and various 
desires wliich are only conceivable with reference to abstrac- 
tions, and result not from any physical antecedent but from 



240 SELECTED HEADINGS IN ECONOMICS 

operations of the mind. By the aid of memory, which recalls 
the past; and of imagination, which represents the distant, the 
absent, and the future ; and of reason, which exercises a judg- 
ment upon the utility present or prospective of an object, and 
upon the means of obtaining it, man forms desires concerning 
his personal safety, his family, and his property. These desires, 
like those already described, become, by the force of habit, daily 
more persistent and intense. To this class of desires no limit can 
be assigned other than the mental powers of each individual. 
These wants, except those relating to the family, might arise in 
a man isolated from all other beings of the same kind. But mian 
is by the constitution of his nature a social being. Beginning 
with the family, he soon forms relations with other men, and 
lives, and moves, and has his being in society. Hence arise 
new desires, each of which, like every other desire, is intensi- 
fied and confirmed by habit. Man is imitative, and so seeks to 
have what his neighbor enjoys; he is vain, and so desires to 
display himself and his possessions with advantage before his 
fellows; he loves superiority, and so seeks to show something 
that others have not; he dreads inferiority, and so seeks to 
possess what others also possess. Hence it is that, as daily 
experience teaches us, no man ever attains the state in which 
he has no wish ungratified. The greater the development of the 
mental and moral faculties, the greater will be the number of 
desires ; the more continuous the gratification of these desires, 
the more confirmed will be the habit. 

Human desires are indefinite not only as to their extent but 
as to their objects. The capacity of desire is strengthened and 
extended by exercise, but the desire is not necessarily felt for 
the same things. There are some objects to the use of which 
strict physical limits are set. There are others for which the 
pleasure depends, in a great degree, upon their scarcity. But in 
hardly any case does the increase of the object bring with it a 
proportionate increase of enjoyment. The sameness soon palls 
upon the taste ; and if, as is usually the case, an extraordinary 
quantity of one object involve a corresponding diminution in 
the supply of others, one faculty or class of faculties is gratified 



HUMAN WANT8 AND THEIK SATISFACTION 24:1 

to the full extent that its nature will bear, while the other 
faculties are left unsupplied. 

Not merely is the amount of human desire indefinite, but the 
modes in which desire in many different individuals is mani- 
fested, are equally without any practical limit. Even in the 
primary appetites there is room for great diversity, according 
to differences of climate, age, sex, and other considerations, in 
the choice of food, and the construction of houses, and the 
fashion of clothes. In the desires which are peculiar to man 
we seldom find agreement. The diversity of individual tastes is 
proverbial. Two persons will often regard with very different 
feeling the same object. The same man will at different times 
and in different circumstances experience great changes in his 
desires and his aversions. There is, however, a remarkable 
distinction in the facility with which desires can be appeased. 
It is in those cases in which the commodity" is essential to our 
existence or our comfort that the limit to our gratification is 
soonest reached. Our most irrepressible appetites are the most 
quickly satisfied. Our most insatiable desires are the most 
easily repressed. Were it otherwise, with the present predomi- 
nance of the self-regarding affections, the accumulation of the 
wealthy might interfere with the existence of the poor. Desire, 
too, is never transformed into a want, strictly so called, — that is, 
into painful desire, — until it has been made such by habit ; in 
otlier words, until the means of satisfying the desire have been 
found and placed irrevocably within our reach. 

It is not difficult to perceive the cause of this diversity of 
desire, or to trace the circumstances on which the development 
of our wants depends. That cause is found where at first it 
might not be expected, but where its presence is consistent with 
a deeper investigation of our nature, — in the state of our intel- 
lectual development. Beyond the mere primary appetites no 
other want can make itself known except through some mental 
operation. Our actions depend upon our will, and our will 
depends upon our judgment. If we seek to obtain any object, 
it is because we desire it ; if we desire it, it is because we have 
formed some notion of its nature, and some judgment upon its 



242 SELECTED READINGS IN ECONOMICS 

suitability to our purposes. According, then, to the degree 
with which we are acquainted with external objects, and to the 
power that we possess of judging of their relations to ourselves 
and to other things, our capacity of desire will be extended. 
Our' desires, too, are subject to our will, and admit of being 
repressed or encouraged without assignable limits. It therefore 
depends upon the education, in the ^widest sense of that term, of 
each individual, and upon his character as mamly resulting from 
that education, how many and what kinds of objects, and with 
what degree of persistency, he desires. The more complete the 
intellectual development, the wider will be the field of desire ; 
and, by the usual reaction in our mental nature, the wider the 
field of desire, the stronger will be the inducements to intellec- 
tual effort for the continuance of means to gratify these desires. 
On the contrary, the narrower our field of thought, the more 
contracted and the more humble will be our desires ; and the 
less, consequently, will be the inducement to incur that con- 
tinuous exertion of mind or body that industry implies. Where 
intelligence therefore prevails, the number of desires and the 
power of satisfying them will be alike great ; where intelligence 
is small, the number of desires and the power of satisfying them 
will also be small. If this principle be true of individuals 
taken separately, it will not cease to be true of them when they 
are regarded as forming the aggregate that we term a nation. 
It requires but little observation to perceive the confirmation 
which these reasonings obtain from actual experiences. We 
know that the desires of educated men are more varied and 
more extended than those of persons without education. We 
know that the wages of educated men are higher, and conse- 
quently their means of gratifying their desires greater, than 
those of the uneducated. If an educated man be reduced by 
misfortune, we sympathize with the disproportion between his 
desires and his means of satisfying them. If an uneducated 
man become suddenly rich, we see that, from the limited extent 
of his former wants and the undeveloped condition of his 
desires, he literally does not know what to do with his money, 
and rushes into the most extravagant and ludicrous follies. 



HUMAN WANTS AND THEIK SATISFACTION 243 

We see that if a man Ije content, like a dog, to eat his dinner 
and to sleep, his nature will giadnall}' sink to that of a hrute. 
The higher faculties will waste from disuse ; the lower, in the 
absence of restraint, and from habitual exercise, will acquire a 
complete predominance. On the other hand, those nations and 
those classes of a nation who stand highest in the scale of 
civilization are those whose wants, as experience shows us, are 
the niost numerous, and whose efforts to satisfy those wants 
are the most unceasing. 

Nothing, therefore, can be further from the truth than the 
ascetic doctrine of the paucity and the brevity of human wants. 
So far from man wanting little here below, his wants are 
indefinite, and never cease to be so during his whole existence. 
Nor is there anything immoral in such a view. The supposed 
inconsistenc}' arises from a confusion of apathy with content. 
The former term implies that the development of desire is 
repressed ; the latter that it is regulated. Content is a judg- 
ment that, upon the whole, we cannot with our existing means 
improve our position, along with an unmurmuring submission 
to the hardships, if any, of that position. Its aim is not to 
satisfy desires, but to appease complaint ; it is consequently 
not inconsistent with the most active efforts to alter that com- 
bination of circumstances upon which the judgment was formed. 
" The desire of amelioration, it has been truly said, is not less 
a moral principle than patience under afflictions; and the use 
of content is not to destroy, but to regulate and direct it." 

So far from our wants being unworthy of our higher nature, 
we can readily trace their moral function and appreciate its 
importance. They not only prevent our retrogression, but 
secure our advancement. Our real state of nature consists not 
in the repression, but in the full development and satisfaction, 
of all those faculties of which our nature consists. Such a 
state is found not in the poverty of the naked savage, but in 
the wealth of the civilized man. It is the constant and powerful 
impulse of our varied and insatiable desires that urges us to 
avoid the one state and to tend towards the other. "■ Wants 
and enjoyments," says Bentham, " these universal agents in 



244 SELECTED EEADINGS IN ECONOMICS 

society, after having raised the first ears of corn, will by degrees 
erect the granaries of abundance, always increasing and always 
full. Desires extend themselves with the means of gratification ; 
the horizon is enlarged in proportion as we advance, and each 
new want, equally accompanied by its pleasure and its pain, 
becomes a new principle of action. Opulence, which is only a 
comparative term, does not arrest this movement when once it 
has begun ; on the contrary, the greater the means, the greater 
the field of operations, the greater the reward, and consequently 
the greater the force of the motive which actuates the mind. 
But in what does the wealth of society consist, if not in the 
total of the wealth of the individuals composing it ? And what 
more is required than the force of those natural motives for 
carrying the increase of wealth to the highest possible degree ? " 
But these wants do not stimulate our acquisitive and inventive 
powers only. They also serve to discipline our moral nature. 
Many of man's proceedings are slow in their nature, and so he 
must practice patience. In like manner, he must expend some 
of his acquisitions with the view of acquiring more ; and thus 
in addition to patience he must exercise hope. One great means 
of increasing his power is cooperation with his fellow-men ; he 
must therefore, to some extent, subordinate or at least assimilate 
his will to theirs, and so he must learn forbearance. Thus the 
efforts that we make for the satisfaction of our wants supply 
the means for developing both our intellectual and our moral 
faculties. 

The subject of this inquiry is the efforts made by man to 
secure enjoyment. The particular character of any enjoyable 
object is therefore, for the present purpose, indifferent. The 
question is not whether a given object be conducive to our 
general well-being, but simply whether it be enjoyable. If it 
be enjoyable, it is foreign to the purpose to consider whether 
the enjoyment to which it contributes be unmeaning or even 
immoral ; or whether it be embodied in a tangible shape ; or be 
merely a fleeting gratification of the sense ; or be a permanent 
benefit to the body or the mind. We pass no judgment upon the 
character of the want or upon the manner in which it should 



huma:x wants and tpieir satisfaction 245 

be regulated. For our purposes wants are simply motives of 
varj'ing power which universally exist, and the laws of which 
we propose to investigate. We have to deal with them merely 
as forces, without any other estimate of their characters than 
the intensity with which they are felt by the persons who ex- 
perience them. Nor are we any more concerned to appreciate 
tlie character of the means of enjoyment tlian we are to appre- 
ciate the character of the want. It is enough that the want is 
felt, and that it can be^ satislied. 

2. The Theory of Utility^ 
Utility is not an Intrinsic Quality 

My principal work now lies in tracing out the exact nature 
and conditions of utility. It seems strange indeed that econo- 
mists have not bestowed more minute attention on a subject 
which doubtless furnishes the true key to the problem of 
economics. 

In the first place, utility, though a quality of tilings, is no 
inherent quality. It is better described as a circumstance of tilings 
arising out of their relation to man's requirements. As Senior 
most accurately says, " Utility denotes no intrinsic quality in 
the things which we call useful ; it merely expresses their rela- 
tions to the pains and pleasures of mankind." We can never, 
therefore, say absolutely that some objects have utility and others 
have not. The ore lying in the mine, the diamond escaping the 
eye of the searcher, the wheat lying unreaped, the fruit un- 
gathered for want of consumers, have no utility at all. The 
most wholesome and necessary kinds of food are useless unless 
there are hands to collect and mouths to eat them sooner or 
later. Nor, when we consider the matter closely, can we say that 
all portions of the same commodity possess equal utility. Water, 
for instance, may be roughly described as the most useful of all 
substances. A quart of water per day has the high utility of sav- 
ing a person from dying in a most distressing manner. Several 

1 By W. S. .Jevons. Reprinted from Jevons's Theory of Political Economy, 
third edition [London, 1888]. 



246 SELECTED EEADINGS IN ECONOMICS 

gallons a day may possess much utility for such purposes as 
cooking and washing; but after an adequate supply is secured 
for these uses, any additional quantity is a matter of compara- 
tive indifference. All that we can say, then, is that water, up 
to a certain quantity, is indispensable ; that further quantities 
will have various degrees of utility ; but that beyond a certain 
quantity the utility sinks gradually to zero ; it may even become 
negative, that is to say, further supplies of the same substance 
may become inconvenient and hurtful. 

Exactly the same considerations apply more or less clearly to 
every other article. A pound of bread per day supplied to a 
person saves him from starvation, and has the highest conceiv- 
able utility. A second pound per day has also no slight utility; 
it keeps him in a state of comparative plenty, though it be not 
altogether indispensable. A third pound would begin to be 
superfluous. It is clear, then, that utility is not proportional to 
commodity : the very same articles vary in utility according as 
we already possess more or less of the same article. The like 
may be said of other things. One suit of clothes per annum is 
necessary, a second convenient, a third desirable; a fourth not 
unacceptable, but we sooner or later reach a point at which 
further supplies are not desired with any perceptible force 
unless it be for subsequent use. 

Law of the Variation of Utility 

Let us now investigate this subject a little more closely. 
Utility must be considered as measured by, or even as actually 
identical with, the addition made to a person's happiness. It is 
a convenient name for the aggregate of the favorable balance 
of feeling produced, — the sum of the pleasure created and the 
pain prevented. We must now carefully discriminate between 
the total utility arising from any commodity and the utility 
attaching to any particular portion of it. Thus the total utility 
of the food we eat consists in maintaining life, and may be con- 
sidered as infinitely great; but if we were to subtract a tenth 
part from what we eat daily, our loss would be but slight. We 



HUMAN WAXTS AN J) TIIKIK SATISFACTION 247 



should certainly not lose a tenth part of the whole utilit}- of 
food to us. It miglit be d()ul)tfnl whether we should suffer any 
harm at all. 

Let us imagine the whole quantity of food which a person 
consumes on an average during twenty-four hours to be divided 
into ten equal parts. If his food be reduced by the last part, he 
will suffer but little ; if a second tenth part be deficient, he will 
feel the want distinctly ; the subtraction of the third tenth part 
will be decidedly injurious ; with every subsequent subtraction 
of a tenth part his sufferings will be more and more serious, 
until at length he will be upon the verge of starvation. Now, 
if we call each of the tenth parts an increynent, the meaning of 
these facts is, that each increment of food is less necessary, or 
possesses less utility, than the previous one. To explain this 
variation of utility we may make use of space representations, 
which I have found convenient in illustrating 
the laws of economics in my college lectures 
during fifteen years past. 

Let the line ox be used as a measure of the 
quantity of food, and let it be divided into ten 
equal parts to correspond to the ten portions 
of food mentioned above. 
Upon these equal lines are 
constructed rectangles, and 
-* — ^ the area of each rectangle 
may be assumed to repre- 
sent the utility of the increment of food corresponding to its 
base. Thus the utility of the last increment is small, being pro- 
portional to the small rectangle on x. As we approach towards 
0, each increment bears a larger rectangle, that standing upon 
111 being the largest complete rectangle. The utility of the next 
increment, ii, is undefined, as also that of i, since these portions 
of food would be indispensable to life, and their utility, there- 
fore, infinitely great. 

We can now form a clear notion of the utility of the whole 
food, or of any part of it, for we have only to add together the 
proper rectangles. The utility of the first half of the food will 



V a VI vii viu 



248 



SELECTED EEADINGS IX ECONOMICS 



be the sum of the rectangles standing on the line oa ; that of 
the second half will be represented by the sum of the smaller 
rectangles between a and h. The total utility of the food will 
be the whole sum of the rectangles, and will be infinitely great. 
The comparative utility of the several portions is, however, 
the most important. Utility may be treated as a qxiantity of two 
dimensions, one dimension consisting in the quantity of the com- 
modity, and another in the intensity of the effect produced upon 
the consumer. Now the quantity of the commodity is measured 
on the horizontal line ox, and the intensity of utility will be 
measured by the length of the upright lines, or ordinates. The 
intensity of utility of the third increment is measured either by 
pq, or p'q', and its utility is the product of the units in j^p' 
multiplied by those in pq. 

But the division of the food into ten equal parts is an arbi- 
trary supposition. If we had taken twenty or a hundred or more 
equal parts, the same general principle would hold true, namely, 
that each small portion would be less useful and necessary than 
the last. The law may be considered to hold true theoretically, 
however small the increments are made ; and in this way we 
shall at last reach a fiefure which is undisting-uishable from a 
continuous curve. The notion of infinitely small quantities of 
food may seem absurd as regards the consumption of one indi- 
vidual ; but when we consider the consumption of a nation as 
a whole, the consumption may well be conceived 
to increase or diminish by quantities which are, 
practically speaking, infinitely small compared 
with the whole consumption. The laws 
which we are about to trace out are to be 
conceived as theoretically 
true of the individual; 
they can only be practi- 
cally verified as regards the 
aggregate transactions, 
productions, and consump- 
tions of a large body of people. But the laws of the aggregate 
depend of course upon the laws applying to individual cases. 




HUMA^' WA^'TS A:M)- THEIR SATISFACTION 249 

The law of the variation of the degree of utility of food may 
thus be represented by a continuous curve j?bq, and the perpen- 
dicular height of each point at the curve above the line ox rep- 
resents the degree of utility of the connnodity when a certain 
amount has been consumed. 

Thus, when the quantity oa has been consumed, the degree of 
utility corresponds to the length of the line ah ; for if we take a 
very little more food, aa\ its utility will be the pioduct of aa' and 
ah very nearly, and more nearly the less is the magnitude of aa'. 
The degree of utility is thus properly measured by the height of 
a very narrow rectangle corresponding to a very small quantity 
of food, which theoretically ought to be infinitely small. 

Total Utility and I)egree of Utility 

We are now in a position to appreciate perfectly the differ- 
ence between the total utility of any commodity and the degree 
of utility of the commodity at any point. These are, in fact, 
quantities of altogether different kinds, the first being repre- 
sented by an area, and the second by a line. We must consider 
how we may express these notions in appropriate mathematical 
language. 

Let X signify, as is usual in mathematical books, the quantity 
which varies independently, — in this case the quantity of com- 
modity. Let u denote the wliole utility proceeding from the 
consumption of x. Then u will be, as mathematicians say, a 
function of x ; that is, it will vary in some continuous and regu- 
lar, but probably unknown, manner, when x is made to vary. 
Our great object at present, however, is to express the degree 
of utility. 

]\Lathematicians employ the sign A prefixed to a sign of 
quantity, such as a;, to signify that a quantity of the same 
nature as a-, but small in proportion to x, is taken into considera- 
tion. Thus Ax' means a small portion of .r, and x -f Ax is there- 
fore a quantity a little greater than x. Now when r is a quantity 
of commodity, the utility of x -\- Ax will be more than that of x 
as a general rule. Let the whole utility of x+ Ax be denoted 



250 SELECTED EEADINGS IN ECONOMICS 

by w + Aw ; then it is obvious that the increment of utility Aw 
belongs to the increment of commodity Aa; ; and if, for the sake 
of argument, we suppose the degree of utility uniform over the 
whole of Aa:, which is nearly true, owing to its smallness, we 
shall find the corresponding degree of utility by dividing Av^ 
by Ax. 

We find these considerations fully illustrated by the last figure, 
in which oa represents x, and ah is the degree of utility at the 
point a. Now, if we increase x by the small quantity ad, or Ax, 
the utility is increased by the small rectangle abb'a', or Aw ; 
and since a rectangle is the product of its sides, we find that 
the length of the line ab, the degree of utility, is represented 

by the fraction 

^ Ax 

As already explained, however, the utility of a commodity 
may be considered to vary with perfect continuity, so that we 
commit a small error in assuming it to be uniform over the whole 
increment Ax. To avoid this, we must imagine Ax to be reduced 
to an infinitely small size. Aw decreasing with it. The smaller 
the quantities are the more nearly we shall have a correct expres- 
sion for ab, the degree of utility at the point a. Thus the limit 

of this fraction — , or, as it is commonly expressed, — , is the 

degree of utility corresponding to the quantity of commodity x. 
The degree of utility is, in mathematical language, the differen- 
tial coefficient of w considered as a function of x, and will itself 
be another function of x. 

We shall seldom need to consider the degree of utility except 
as regards the last increment which has been consumed, or, 
which comes to the same thing, the next increment which is 
about to be consumed. I shall therefore commonly use the 
expression ^waZ degree of utility, as meaning the degree of utility 
of the last addition, or the next possible addition of a very 
small, or infinitely small, quantity to the existing stock. In 
ordinary circumstances, too, the final degree of utility will not 
be great compared with what it might be. Only in famine or 
other extreme circumstances do we approach the higher degrees 



HUMAN WANTS AND THEIR SATISFACTION 251 

of utility. Accordingly we can often treat the lower portions 
of the curves of variation (pbq) which concern ordinary com- 
mercial transactions, while we leave out of sight the portions 
beyond p or q. It is also evident that we may know the degree 
of utility at any point while ignorant of the total utility, that 
is, the area of the whole curve. To be able to estimate the 
total enjoyment of a person would be an interesting thing, but 
it would not be really so important as to be able to estimate 
the additions and subtractions to his enjoyment which circum- 
stances occasion. In the same way a very wealthy person may 
be quite unable to form any accurate statement of his aggregate 
wealth, but he may nevertheless have exact accounts of income 
and expenditure, that is, of additions and subtractions. 

Variation of the Final Degree of Utility 

The final degree of utility is that function upon which the 
theory of economics will be found to turn. Economists, gen- 
erally speaking, have failed to discriminate between this func- 
tion and the total utility, and from this confusion has arisen 
much perplexity. Many commodities which are most useful to 
us are esteemed and desired but little. We cannot live without 
water, and yet in ordinary circumstances we set no value on it. 
Why is this? Simply because we usually have so much of it 
that its final degree of utility is reduced nearly to zero. We 
enjoy every day the almost infinite utility of water, but then 
we do not need to consume more than we have. Let the supply 
run short by drought, and we begin to feel the higher degrees 
of utility, of which we think but little at other times. 

The variation of the function expressing the final degree of 
utility is the all-important point in economic problems. We 
may state, as a general law, that the degree of utility varies tvith 
the quantity of commodity, and ultimately decreases as that quan- 
tity increases. No commodity can be named which we continue 
to desire with the same force, whatever be the quantity already 
in use or possession. All our appetites are capable of satisfac- 
tion or satiety sooner or later, in fact, both these words mean, 



252 SELECTED READINGS IN ECONOMICS 

etymologically, that we have had enough, so that more is of 
no use to us. It does not follow, indeed, that the degree 
of utility will always sink to zero. This may be the case with 
some things, especially the simple animal requirements, such 
as food, water, air, etc. But the more refined and intellectual 
our needs become, the less are they capable of satiety. To 
the desii'e for articles of taste, science, or curiosity, when once 
excited, there is hardly a limit. 



Disutility and Discommodity 

A few words will suffice to suggest that as utility corresponds 
to the production of pleasure, or, at least, a favorable altera- 
tion in the balance of pleasure and pain, so negative utility 
will consist in the production of pain, or the unfavorable alter- 
ation of the balance. In reality we must be almost as often con- 
cerned with the one as with the other ; nevertheless, economists 
have not employed any distinct technical terms to express that 
production of pain which accompanies so many actions of life. 
They have fixed their attention on the more agreeable aspect 
of the matter. It will be allowable, however, to appropriate the 
good English word discommodity, to signify any substance or 
action which is the opposite of commodity, that is to say, any- 
thing which ive desire to get rid of, like ashes or sewage. Dis- 
commodity is, indeed, properly an abstract form signifying 
inconvenience, or disadvantage ; but as the noun commodities 
has been used in the English language for four hundred years 
at least as a concrete term, so we may now convert discom- 
modity into a concrete term, and speak of discommodities as 
substances or things which possess the quality of causing in- 
convenience or harm. For the abstract notion, the opposite or 
negative of utility, we may invent the term disutility, which 
will mean something different from inutility, or the absence of 
utility. It is obvious that utility passes through inutility 
before changing into disutility, these notions being related 
as +, O, and — . 



HUMAN WANTS AND THEIR SATISFACTION 253 

Distribution of Commodity in Different Uses 

The principles of utility may be illustrated by considering 
the mode in which we distribute a commodity when it is cap- 
able of several uses. There are articles which may be employed 
for many distinct purposes : thus, barley may be used either to 
make beer, spirits, bread, or to feed cattle ; sugar may be used 
to eat, or for producing alcohol ; timber may be used in con- 
struction, or as fuel ; iron and other metals may be applied to 
many different purposes. Imagine, then, a community in the 
possession of a certain stock of barley ; what principles will 
regulate their mode of consuming it? Or, as we have not yet 
reached the subject of exchange, imagine an isolated family, or 
even an individual, possessing an adequate stock, and using 
some in one way and some in another. The theory of utilit}' 
gives, theoretically speaking, a complete solution of the question. 

Let s be the whole stock of some commodity, and let it be 
capable of two distinct uses. Then we may represent tlie two 
quantities appropriated to these uses by x^ and y^, it being a 
condition that :i\ -\- y^ = s. The person may be conceived as 
successively expending small quantities of the commodity ; 
now it is the inevitable tendency of human nature to choose 
that course which appears to offer the greatest advantage at 
the moment. Hence, when the person remains satisfied with 
the distribution he has made, it follows that no alteration would 
yield him more pleasure, which amounts to saying that an in- 
crement of commodity would yield exactly as much utility in 
one use as in another. Let Au^, Aii.^ be the increments of utility 
which might arise respectively from consuming an increment of 
commodity in the two different ways. When the distiibution is 
completed, we ought to have Ah^ = Au^ ; or at tlie limit we have 
the equation 

dx dy 

which is true when .r, y are respectively equal to x^ y^ We 
must, in otlier words, have the Jiit<d dct/rees of utility in the two 
uses equal. 



254 SELECTED READINGS IN ECONOMICS 

The same reasoning which applies to uses of the same com- 
modity will evidently apply to any two uses, and hence to all 
uses simultaneously, so that we obtain a series of equations less 
numerous by a unit than the number of ways of using -the com- 
modity. The general result is that commodity, if consumed by 
a perfectly wise being, must be consumed with a maximum 
production of utility. 

We should often find these equations to fail. Even when x 
is equal to -^^-^ of the stock, its degree of utility might still 
exceed the utility attaching to the remaining ^^^ part in either 
of the other uses. This would mean that it was preferable to 
give the whole commodity to the first use. Such a case might 
perhaps be said to be not the exception but the rule ; for when- 
ever a commodity is capable of only one use, the circumstance 
is theoretically represented by saying that the final degree of 
utility in this employment always exceeds that in any other 
employment. 

Under peculiar circumstances great changes may take place 
in the consumption of a commodity. In a time of scarcity the 
utility of barley as food might rise so high as to exceed alto- 
gether its utility, even as regards the smallest quantity, in pro- 
ducing alcoholic liquors ; its consumption in the latter way 
would then cease. In a besieged town the employment of 
articles becomes revolutionized. Things of great utility in 
other respects are ruthlessly applied to strange purposes. In 
Paris a vast stock of horses was eaten, not so much because 
they were useless in other ways, -as because they were needed 
more strongly as food. A certain stock of horses had, indeed, 
to be retained as a necessary aid to locomotion, so that the 
equation of the degrees of utility never wholly failed. 



CHArXKR TX 

THE LAW OF POPULATION 

1. The Movement of Population ' 

/. Marriage 

Marriage affects the movement of population only indirectly 
and in so far as, under a system of monogamy, it actually affects 
the number of births. 

It is governed by motives that affect all men, and by others 
that affect particular individuals ; it depends upon external con- 
ditions and subjective inclination, upon the economic situation, 
upon public legislation, and upon ecclesiastical regulation. Like 
migration, therefore, it is subject to great variation from time to 
time, and, moie than any other phenomenon known to statistics, 
defies the so-called law of the numerical regularity of social phe- 
nomena. In Wlirttemberg, for instance, the number of marriages 
in the year 1854 was 7905, while in 1871 it was 20,703, or nearly 
three times as large. 

I'he decrease or increase of marriages sometimes affects eco- 
nomic conditions advantageously and sometimes disadvantage- 
ously. An increase indicates that at the time confidence in the 
future prevails ; but in individual cases this confidence may 
just as easily prove mistaken as justified. 

The annual number of marriages depends upon the composi- 
tion of the population in respect of sex and age. In the long 
run not more than the regular yearly quota of young men of 
marriageable age can contract first marriages. If we assume 
that men normally marry between the ages of twenty-five and 
thirty, then each year one fifth of the men in this age group 

1 By Gustav von Riimelin. Translated from Schonberg's Haiidbuch der 
Politischen Oekonomie, I. 

255 



256 SELECTED READINGIS IN ECONOMICS 

will marry for the first time. The number of such men in the 
German Empire was 7.38 per 1000 inhabitants in 1875, 7.12 
per 1000 inhabitants in 1880, and 7.40 per 1000 in 1885, — an 
average of 7.3 per 1000. And in other countries, such as Eng- 
land and France,^ the number does not vary much from these 
figures, since, as statistics show, the number of persons between 
the ages of twenty and thirty years is about the same whether 
population is increasing rapidly or slowly. 

But now since 13.6 per cent of all married men contract 
second or third marriages, it would seem that for Germany the 
highest annual marriage rate would be 8.3 per 1000 inhabitants. 
But in reality such a figure could not be permanently main- 
tained, since some men never marry. In the eight years from 
1872 to 1879, inclusive, the average number of marriages did 
rise to 8.80 per 1000, but this was due to an extraordinary 
number of marriages contracted before the age of twenty-five 
or after the age of thirty. In other countries during the same 
period the figures were considerably lower: Switzerland, 7.6 ; 
Great Britain and Ireland, 7.3 ; Belgium, 7.3 ; Norway, 7 ; 
Sweden, 6.6. In France, however, the figures rose to 8 per 
1000 ; but here, as in Germany, the number was abnormally 
large in the period following the war of 1870.^ During the 
eighties the marriage rate in Europe was lower and more uni- 
form than in the seventies. In France from 1880 to 1884 the 
average rate was 7.5 per 1000 ; in Germany at the same period 
it was 7.6; in England and Wales from 1879 to 1884 it 
was 7.4 ; in Italy for the same years it was 7.6 ; in Austria 
the rate was 7.8 from 1880 to 1884, and at the same time in 

1 In the United States in 1900 the number of males between the ages of 
twenty-five and twenty-nine, inclusive, was about 44 per 1000 of the whole 
population. This would make the yearly quota of marriageable males 8.8 
per 1000. —Ed. 

2 In Massachusetts the number of persons marrying was materially affected 
by the Civil War : 

1860 =20.15 per 1000 1863 = 17.36 per 1000 

1861 = 17.72 per 1000 1864 = 19.87 per 1000 

1862 = 17.68 per 1000 1865 = 20.00 per 1000 

1866= 22.15 per 1000 

By dividing these figures by 2, marriage rates can be computed comparable 
with those in the text. — Ed. 



THE LAW OF POPULATION 257 

Belgium and Switzerland the figures were, respectively, 7 and 
6.8 ; finally in Sweden a rate of 6.3 was maintained from 1880 
to 1883.^ It would seem, therefore, that a rate of 8 or more per 
1000 can be maintained permanently only in countries where a 
considerable number of men marry before the age of twenty-five, 
such as Russia, Servia, and Hungary, or where marriages are 
easily and frequently terminated, and where consequently re- 
marriages are numerous, as in Transylvania. Great variations 
above the normal marriage rate are always due to extraordinary 
conditions, and are followed naturally by reactionary movements. 
And just as regularly a marked reduction of the rate below the 
normal level is a sign of unfavorable economic conditions, and, 
at the best, a necessary remedy for the conditions produced by 

the previous excess in the number of marriages. 

******** 

The average duration of a marriage could be learned, if at all, 
only from family records, since it cannot be ascertained by a 
census. ... It can be estimated, but only approximately, by 
gathering data for a series of normal years and then dividing 
the number of married couples by the number of marriages dis- 
solved by death. The duration will, of course, be longer for 
early marriages than for marriages contracted later in life. Ac- 
cording to the estimates of Wap]iaus, the duration of marriage 
is from twenty-one to twenty-six years ; and for Germany and the 
countries of Middle Europe may approximate twenty-five years. 

The same thing holds true of the average duration of fertility 
in marriages, that is, the average difference between the age of 

1 In 1900 the marriage rates in various European countries were as follows : 

Hungary 8.9 Scotland 7.3 

Belgium 8.6 Italy 7.2 

Germany 8..5 Norway 7.(1 

England an<l Wales 8.0 Sweden 6.2 

France 7.8 Ireland 4.8 

In the New England States for the period 1^03-1807 the marriage rates were: 

New Hampshire 10.09 Maine 8.40 

Massachu.setts 9.05 Vermont 8.;« 

Rhode Island S.-W Connecticut 7 85 

These rates are above the average for Europe, probably because " the sexes 
are (luite equally distributed and the proportion in the middle-age groups is 
large" (Bailey, .Modern Social Conditions, p. 137). — Ed. 



258 SELECTED READINGS IN ECONOMICS 

the first child and that of the last child born of a marriage. 
Direct information could be secured only from family records. 
From such a source it has been learned in Wiirttemberg that 
the period of fertility in the average marriage approximates 
twelve years, and a computation based upon data taken from 
the Almanach de Gotha tends to confirm this conclusion. 

Associated with these statistical concepts is that of a genera- 
tion, by which is meant, not the total number of persons living 
at any one time, but the time required for one generation to 
succeed another, — the average difference of age between par- 
ents and children. The length of a generation, then, is com- 
puted by adding to the average age at which men marry one 
half of the average duration of fertility. For countries of early 
or later marriages, as well as of larger or smaller birth rates, it 
ranges between the somewhat wide limits of thirty-two to 
thirty-nine years. For the countries of Middle Europe" it aver- 
ages from thirty-four to thirty-five years. The length of a gen- 
eration influences materially the social and political development 
of countries, since the rate of change is more rapid if the life of 
a generation is short, and is retarded if the life is longer. 

From statistics based upon several million marriages in coun- 
tries of Middle Europe it has been learned that, upon an average, 
811 out of every 1000 marriages were first marriages for both of 
the contracting parties ; that 106 were marriages of widowers to 
maidens ; that 53 were between bachelors and widows ; and that 
30 were between widowers and widows. In this computation, 
however, divorced persons are counted as widowers or widows. 
In periods of economic depression it appeared that the propor- 
tion of marriages of widowers and widows increased because 
such persons, as a rule, already have an assured livelihood and 
do not have before them the struggle to establish themselves in 
the world. As an example of this tendency it suffices to state 
that in Wiirttemberg between the years 1838 and 1857, a period 
which included the years of depression from 1845 to 1855, out of 
every 1000 marriages 185 were those of widowers and 81 were 
those of widows; whereas from 1871 to 1880 the marriages of 
widowers averaged 146 and those of widows, 67. 



THE LAW OF POPULATION 259 

The average number of births to a marriage cannot be ascer- 
tained from census investigations, but only from family records, 
when these exist and are available. A summary, but at least 
approximately accurate, method of determining the average num- 
ber of births per marriage is to divide the number of legitimate 
births for a series of normal years by the number of marriages 
contracted during the same period. For Germany this method 
of procedure gives us an average of 4.6 births per marriage 
during the period 1875 to 1884, while for France it gives an 
average of 3.1 for the period 1880 to 1884.1 

The number of marriages contracted varies greatly for the 
different months of the year. In Germany it is affected, on the 
one hand, by the customs of the church, although the introduc- 
tion of civil marriage has modified the situation materially. And, 
on the other hand, it is affected by economic motives which in 
agricultural districts tend to compress marriages into the seasons 
before and after the times when the crops demand most atten- 
tion, thereby increasing the proportion contracted in mid-summer 
and mid-winter. If the average number of marriages is assumed 
to be 100 for each day in the year, then tlie average for November 
will be 153 per day ; for October, 128 ; for May, 113 ; for February, 
118; for April, 115; for January, 97; for September, 93; for June, 
91 ; for July, 84; for December, 75; for August, 67; for March, 58.^ 

1 In various European countries the number of births per marriage is as follows : 

European Kussia (1890-1894) = 5.5 Prussia (1890-1894) = 4.2 

Italy (1891-1895)= 4.4 Austria (1890-1894)= 4.1 

Sweden (1890-1894) = 4.3 England ( 1890-1894) - 3,8 

France (1890-1894) = 2.1 

In Massachusetts the statistics are as follows for various dates : 

N.VTivR Foreign 

1850 2.5 ... 5.0 

18C0 1.9 3.5 

18T0 2.2 4.4 

1880 2.2 5.0 

18'.KJ 2.4 4.3 

— Er>. 
' Conditions are not tlie same in all countries. In the United States June is 
becoming the fashionable month for weddings, and in Massachusetts in 1901 
more marriages took place in that month than in any other. During that year 
18.22 per cent of all marriages in Massachusetts occurred during the first three 
months, 28.5.3 per cent occurred during the second quarter, 2.3.76 per cent in the 
third quarter, and 29.49 per cent in the fourth. — Ei». 



260 SELECTED EEADINGS IN ECONOMICS 

//. Births 

In order to obtain a satisfactory basis for measuring the fre- 
quency of births we must proceed upon the principle that the 
number of births does not depend upon the entire population of 
a country, but upon the number of women of child-bearing age. 
In tropical regions women reach this period as early as the age 
of nine or ten, in the south of Europe at the age of thirteen to 
fifteen, and in countries of the north temperate zone at the age 
of seventeen or eighteen. When the period is soonest reached 
it also is soonest ended. In warm climates women are grand- 
mothers at the age of thirty ; in colder climates they sometimes 
bear children at the age of fifty. However, the real period of 
• fertility is not to be estimated by the extreme limits sometimes 
reached. The women who bear children at the age of sixteen 
are not the ones that bear them at the age of fifty, and we 
cannot base our estimates upon exceptional cases. If for the 
countries of Middle Europe the child-bearing age may be con- 
sidered to extend normally from the age of eighteen to the age 
of forty, then we have twenty-two " year classes " of women 
capable of bearing children, which, as the age statistics of these 
countries show, constitute 165 out of every 1000 inhabitants.^ 
If we use this percentage, without making allowance for un- 
fruitful marriages (about 14 per cent of the whole number), 
then it follows that if two children are born to every woman 
between the ages of eighteen and forty, there will be 15 births 
yearly for each 1000 inhabitants. If three children are born 
to each woman, there will be 22.5 births ; if four, there will 
be 30 births ; if five, 37.5 births ; if six, 45 births ; and so on. 
Remembering that out of every four children, hardly three 
live to attain their majority, we may lay it down that a birth 
rate of 30, which means that four children are born to each 
woman, may be considered a fair average. Then a birth rate 
of less than 30 is to be considered low, and one materially 
greater than 30 is high or even excessive. In this estimate, 

1 In the United States in 1900 the females between the ages of eighteen and 
thirty-nine, inclusive, constituted 177 in every 1000 of tlie total population. 



THE LAW OK POPULATION 201 

however, it is always to be remembered that since many women 
remain unmarried and many others are unfruitful, the actual 
number of children born to the others must be somewhat 
greater than our previous figures assume. It is now upon this 
basis that we must examine the statistics showing the birth 
rates of different countries. 

From 1872 to 1877, including the stillborn, the average num- 
ber of births each year for each lOOU inhabitants was as follows : 

German Empire 41.7 Belgium 34.0 

Austria 40.1 Switzerland 32.4 

Italy 38.1 Sweden 31. G 

England and Wales .... 37.1 France 27.3 

Within the German Empire, Wurttemberg, Saxony, West Prussia, 
and Posen showed yet higher birth rates, which ranged from 
45 to 47 ; while in ^Mecklenburg, Oldenburg, and Schleswig- 
Holstein the figures fell as low as 33. France and the German 
Empire stood at the opposite ends of the table, showing the 
extraordinary difference of 14.3 in their respective birth rates ; 
which meant that for every 100 births in France there were 
153 in Germany. 

During the eighties, wlien the marriage rate declined, the 
birth rate showed a considerable decrease in all countries. From 
1880 to 1884 the average birth rates stood as follows : ^ 

Austria 38.8 Belgium 32.4 

German Empire .38.7 Sweden 30. G 

Italy 37.5 Switzerland 30.3 

England and Wales 34.7 France 25.8 

From 1885 to 1887 the birth rate in France declined still fur- 
ther, to 23.5. The absolute figures make the contrast between 

1 For 1900 the figures are as follows : 

Hunt'ary 39.3 England an<l Wales 28.7 

Austria 37.1 Belgium 28.9 

Germany 35.6 Sweden 2C.9 

Italy 32.9 France 21.4 

For Austria the figure here given is the average for the decade 1891 to 
1900. — El.. 



262 



SELECTED EEADINGS IN ECONOMICS 



France and Germany still more striking, since from 1885 to 
1887 there were but 885,000 births in the foimer country as 
compared with 1,825,000 in the latter. This meant that Ger- 
many had twice as many births as France, although her popu- 
lation at the time was but one fourth larger.^ 

In general the birth rate is larger among the Germanic peoples 
than among the Romanic, while among the Slavic races it is 
still higher than among the Germans, as may be seen in the 
parts of Germany and Austria inhabited chiefly by Slavs. For 

1 No figures showing the birth rate are available for the United States. That 
the birth rate is decreasing, as in Europe, is shown by the following table, which 
shows the percentages which the number of children under ten years of age 
bears to the total population. 



Census 


Total 
Population 


Population 

UNDER 

10 Years of 
Age 


Per Cent of 
Total Popu- 
lation under 
10 Years of 
Age 


Continental United States : 1900 

1890 

1880 

1870 

1860 

1850 

1840 

1830 

1820 

1810. . . ■ . 
1800 


75,994,575 

62,622,250 

50,155,783 

38,558,371 

31,443,321 

23,191,876 

17,063,353 

12,860,702 

9,638,453 

7,239,881 

5,308,483 


' 18,044,751 
15,208,691 
13,394,176 
10,329,426 
9,013,696 
6,739,041 
5,440,593 
4,224,897 
3,150,038 
2,424,683 
1,776,010 


23.7 
24.3 
26.7 
26.8 
28.7 
29.1 
31.9 
32.9 
32.7 
33.5 
33.5 



Still more significant are the following figures showing the number of childi-en 
under five years of age for every 1000 females from fifteen to forty-uine years 
of age, inclusive : 





Number of Children 


Census 


under 5 Years of Age 


Ti) 1000 Females 15 to 




49 Years of Age 


Continental United States : 1900 


474 


1890 


485 


1880 


559 


1870 


572 


1860 


634 


1850 


626 



— Ed. 



THE LAW OF POPULATION 263 

Russia only scattered and unreliable data are available ; yet such 
ligures as we have, combined with the well-known fact that 
marriages occur among the peasants at an early age and are 
exceedingly fruitful, make it very probable that the average 
birth rate is considerably above forty-five and altogether the 
highest in Europe. This is confirmed by the following statistics 
showing the average birth rates in more recent years: 

Hungary (1878-1882) .... 42.0 West Prussia (1883) .... 45.5 

Posen (1883) 44.2 Russia (1882) 49 

Servia (1880-1884) .... 44.7 

All so-called laws of the frequency of births are untenable. 
The birtli rate does not seem to depend upon the climate, upon 
differences of class or occupation, upon differences between 
city and country, or upon the density of the population. Yet 
it is influenced by national customs and beliefs as well as by 
changes in economic conditions. Such circumstances as dearness 
or cheapness of the necessaries of subsistence and the ease or 
difficulty of securing a livelihood influence the birth rate in- 
directly, since they affect materially the number of marriages. In 
recent decades in Wvirttemberg the number of births has varied 
from 53,000 (in 1854) to 89,000 (in 1876). Further, a reciprocal 
relation exists between fertility and infant mortality, because, in 
a vicious circle, high fertility decreases the care given to chil- 
dren, while, on the other hand, a high infant mortality gives a 
motive for more and more births. 

Of every 1000 deliveries 1011.7 children are born; that is, 
1.17 per cent of all deliveries give multiple births, of which, in 
turn, 99 per cent are births of twins. 

Statistics of the stillborn are defective. Tlie usual and cor- 
rect practice is to include tlie stillborn in the statistics of biiths 
and then of deaths, but in tlie ICnglish returns they are wholly 
omitted. It frequently happens that children dying soon after 
birth are included with the stillborn ; while on the other hand, 
especially in Catholic countries, it must often happen that still- 
born are confused with children privately baptized, and are re- 
turned as children dying after baptism. In the (ierman Empire 



264 SELECTED READINGS IN ECONOMICS 

from 1875 to 1884 stillbirths averaged 3.9 per cent of all births, 
and formed 5.6 per cent of all deaths. At the same period there 
were 129 male children stillborn for every 100 female, while of 
every 1000 legitimate births 38 were stillborn, and of every 
1000 illegitimate births not less than 51. 

A noteworthy fact, first discovered by Siissmilch in the 
eighteenth century, has occasioned much discussion. Since the 
time of Siissmilch data gathered concerning 200,000,000 births 
have placed it beyond all possible doubt. This is the invariable 
excess of male births over female, in the proportion of 106 to 
100, or approximately 17 to 16. The result is that of every 
1000 births, not 500, but 515 are of male children and 485 of 
female. In the German Empire an average for the twelve years 
from 1872 to 1883 gave a proportion of 106.3 to 100, while 
the individual years showed variations not ranging below 105.8 
or above 106.7. We cannot here enter upon consideration 
of the further facts that the excess of males is greater with 
first births than with others, with legitimate than with illegiti- 
mate, and with Jews than with Christians. Neither can we 
consider the various unsuccessful attempts to explain this 
peculiar fact. 

******** 

Like marriages, births are unequally distributed among the 
various months of the year. The variations are not so marked 
in the case of births as they are in that of marriages, but they 
show the same general tendency. If the average number of 
births be taken as 100 for each day in the year, the statistics of 
the German Empire from 1872 to 1884 show that the average 
for February was 107 per day ; for September, 105 ; for March, 
104; for January, 103; for April and October, 100; for November 
and December, 99 ; for August, 98 ; for May, 97 ; for July, 96 ; 
and for June, 95.^ 

1 In Massachusetts the distribution of births is different. Reduced to a 
standard of 100, the statistics- from 1876 to 1895 showed the following result : 



January = 95. G 


April = 94.9 


July = 104.1 


October = 101.3 


February = 98.G 


May =94.0 


August = 106.6 


November = 101.5 


March = 98.0 


June = 98.4 


September = 104.4 


December = 102.7 

— El). 



THE LAW OF POPULATION 2t)5 



///. Deaths 

High marriage and death rates are of only relative — and 
frequently doubtful — social advantage ; but a low death rate 
is absolutely and undoubtedly advantageous. There is no more 
certain indication of social welfare, of good morals and institu- 
tions, and of sound economic conditions than the fact that a 
very large proportion of a nation's inhabitants attain the full 
natural limit of human life. A well-known passage in the 
Bible (Psalm xc. 10) places this limit at seventy, or, at the 
most, eighty years ; but physiological reasons, actual experi- 
ence with longevity, and historical facts justify the belief that 
these figures are too low. One might, perliaps, expect that where 
a considerable number of men leading a peaceful, civilized life 
reach an advanced age, the average duration of life would be 
fairly long ; but statistics by no means justify such an expec- 
tation. They show that in Middle Europe, upon an average, 
not more than 18 persons out of every 100 reach the age 
of seventy, while only 11 reach the age of seventy-five and 
only 5 the age of eighty. Among some of the countries of 
modern Europe the average duration of life does not exceed 
forty years, and among others it falls considerably belOw 
that figure. 

The general rate of mortality is better stated in percentages 
or as so many deaths in the thousand than in the earlier form of 
one death to every thirty or forty persons living. P'or various 
countries the average rate of mortality during the seventies 
stood as follows: 

Austria 33.1 

Italy 30.8 

Germany 20.3 

Switzerland 24. <> 

France 23.(5 

Belgium 23.3 

England and Wales 23.3 

Sweden 19.6 



266 



SELECTED READINGS IN ECONOMICS 



During the eighties, doubtless as a result of the decrease in 
births, the figures were lower, while the order of the countries 
in our table was somewhat altered : ^ 



Hungary 34.9 

Austria 30.8 

Italy 28.7 

Germany 27.3 

Netherlands 24.4 

France 23.5 

Belgium 22.5 

Switzerland 22.2 

England and Wales 20.4 

Sweden 18.8 

The general rate of mortality, as here stated, is of limited 
value because it gives no indication of the relative vitality of 
the people of different countries. The rate is materially affected 
by the extent of infant mortality, and this in turn depends upon 

1 The following table is taken from the Twelfth Census of the United States, 
Supplementary Analysis, 495 : 

Comparative Death Rates per One Thousand Population for Certain Countries 



Country 



Austria 

Belgium 

Denmark 

England and Wales 

France 

German Empire 

Prussia 

Hungary 

Ireland 

Italy 

Netherlands 

Norway 

Scotland 

Spain ' 

Sweden 

Switzerland 

United States (registration area) 



1890 



29.4 
20.6 
19.0 
19.5 
22.8 
24.4 
24.0 
32.4 
18.2 
26.4 
20.5 
17.9 
19.7 
32.5 
17.1 
20.8 
19.6 



Twenty- 
five Years 
1876-1900 



28.6 
20.1 
18.3 
19.1 
21.9 
24.2 
23.7 
32.3 
18.2 
2C.5 
20.3 
16.0 
19.2 
30.3 
17.0 
20.6 



1900 



25.4 
19.3 
16.9 
18.2 
21.9 
22.1 
21.8 
26.9 
19.6 
23.8 
17.8 
15.9 
18.5 
28.7 
16.8 
19.3 
17.8 



Outside the "registration area," the death rate in the United States can be 
estimated only approximately. The best opinion is that it is not less than 17.8 
or higher than 19.5. See W. F. Willcox, in Publications of American Statistical 
Association, September, 1906. — Ed. 



THE LAW OF POPULATION 267 

the birth rate. The dangers that beset births and infancy, espe- 
cially in the first year of life, are far greater than those en- 
countered at any other age except the most advanced, and they 
affect the general rate of mortality more than any other factor. 
Children dying under the age of five years, including the still- 
born, constitute 40 or 50 per cent of all deaths ; and children 
dying in their first year of life constitute 30 or 40 per cent. 
Exclusive of the stillborn, 33.4 per cent of all the children born 
in Prussia died before the completion of their fifth year during 
the period 1865 to 1878, and 21.7 per cent died before reaching 
the age of one year. In Bavaria the figures stand, respectively, 
39.6 and 31.6; in Wlirttemberg they were 38.8 and 32.3; in 
Saxony, 38.5 and 32.3 ; in Baden, 34.6 and 27.1 ; in the Thurin- 
gian states, 30.8 and 22.1. For other European countries the 
percentages are: England and Wales, 25.1 and 15.2 ; France, 25 
and 16.6; Italy, 38 J and 21.8; Switzerland, 26.5 and 19.8; 
Norway, 18.3 and 10.7 ; Sweden, 22.2 and 13.7 ; Austria, 39.1 
and 25.7 ; Belgium, 24.7 and 14.5. It is very clear that these 
variations in infant mortality must affect the general death rate 
very materially. In Wlirttemberg the rate of infant mortality in 
the first year of life is three times as high as it is in Norway. 
In the various German states two thirds of the children born 
alive survive beyond the fifth year, while in England and 
France three fourths survive, and in Scandinavia, four fifths. 
Now the rate of infant mortality enables us to draw no conclu- 
sion, one way or the other, concerning the vitality of persons 
who reach the age of maturity ; and at present the science of 
statistics does not enable us to ascertain further differences in 
the mortality of European nations. 

In the same way existing data are inadequate to enable us 
to establish any generally valid principles concerning differences 
in the mortality rates of urban and rural populations, of agricul- 
tural and industrial workers, or of single and married persons, 
according to their class and occupation. 

Upon the other hand, it is certain that poverty affects unfavor- 
ably the duration of life. This is not to say that the rich have a 
definite advantage over persons in moderate circumstances who 



268 SELECTED EEADINGS IN ECONOMICS 

nevertheless have enough to support life, or that the peasant's 
or mechanic's expectation of life is less than that of a prince or 
millionaire ; because in such cases the advantages and disadvan- 
tages appear to equalize themselves. But when actual want 
exists, involving insufficient food and clothing, unsanitary dwell- 
ings, lack, of heat and cleanliness, and lack of proper care and 
medical attendance in sickness, the dangers to life are distinctly- 
increased. It is at this point that epidemics and scarcity of 
provisions are especially felt, the latter bearing with particular 
severity upon the children of the poorer classes who are least 
able to endure the unfavorable change in their diet. 

Then, too, it is not only probable, but established by a multi- 
tude of well-known facts, that morals and habits of living, that 
excesses, inebriety, sexual immorality, are extremely important 
factors in determining the rate of mortality. It is certain also 
that among able-bodied adults poverty is often deserved, and is 
due to shiftlessness or evil habits ; so that the two chief causes 
of high mortality — vice and poverty — work in combination, 
each reenforcing the other. 

It is incontestable, also, that there are differences in the health- 
fulness of the regions in which people live. Climate, geographi- 
cal situation, seas and marshes, lack of drainage or good air, 
bad construction of houses, impure drinking water, and bad 
sanitary provisions very greatly affect the rate of mortality, as 
appears from the latest data concerning European cities. The 
science of hygiene has here an indefinite field for study. 
******** 

Concerning the influence of the seasons upon the rate of 
mortality we can only observe that in Germany the rate is 
highest in March and February, and is lowest in June and 
November. If the average number of deaths is 100 per day, 
then the averages for different months will varyirom 90 to 110. 
August and September show the highest infant mortality ; late 
winter and early spring are the most dangerous seasons for aged, 
persons. In general the mortality for one year may vary con- 
siderably from that for the next, on account of differences in 
the weather. In Germany from 1872 to 1884 the relative 



THE LAW OF POPULATION 269 

number of deaths for each month was as follows, the stillborn 
being excluded : March, 110; February, 109 ; April, 107 ; Janu- 
ary, 103; May, 102; August, 101 ; September, 98; July, 97; 
December, 96 ; June, 94 ; November, 92 ; October, 91.^ In these 
figures the mortality during the first half of the year is notice- 
ably greater than in the second half. 

IV. The Grotvth of Population 

From the difference between the number of births and the 
number of deaths, and from that between the number of immi- 
grants and the number of emigrants, results the movement or, 
under normal circumstances, the growth of population. We 
can distinguish between the absolute increase and the relative 
increase, i.e. the increase expressed in percentages ; the chief 
interest attaches to the latter. 

In computing the percentage of increase it is to l)e remem- 
bered that we must proceed as we would in computing com- 
pound interest. If thirty million people increase in sixty years 
to fifty million, we cannot reckon that, because an increase of 
66.6 per cent occurred in sixty years, the yearly increase was 
1.1 per cent. Nor can we say that the increase of twenty mil- 
lion persons in sixty years means an annual increase of 333,333, 
which would be 1.1 per cent of thirty million. The true rate 
of yearly increase is 0.86 per cent, as it would be computed if 
money were increasing at compound interest. For a short period 
of years the difference between the two methods is not large, 
but for longer periods it is very considerable ; so that the first 
method of computation is wholly inadmissible. 

It is by the same method that we should compute the time 
required for a population to double, — that is, the number of 
years in which, with a given rate of increase, a population will 

1 In the United States the distribution of deaths per 1000 in the registration 
area in 1000 was as follows : 



January = 86.7 


April = 99.3 


July = 87.3 


October = 73.2 


February = S3..'j 


May = 86.2 


August = &3.3 


November = 70.5 


Marcli ' = l(l'2.8 


•June = 73.7 


September = 75.4 


December = 78.1 



Ed. 



270 



SELECTED READINGS IN ECONOMICS 



double ; or, in case a population has doubled in a given period 
of time, the rate at which the increase has proceeded. In such 
computations it is better to reckon by the thousand than by the 
hundred, and on this basis the following table may be con- 
structed to show the number of years required for given rates 
of annual increase to bring about a doubling of the population : 



Rate of 


Years 


Rate of 


Years 


Increase 


Bequiked 


Increase 


Required 


1 per 1000 . . . 


. . . 696.0 


11 per 1000 . . . 


. . . 63.2 


2 " " . . . 


. . . 348.0 


12 " " . . . 


. . . 68.0 


3 " " . . . 


. . . 232.0 


13 " " . . . 


. . . 53.5 


4 " " . . . 


. . . 174.0 


14 " " . . . 


. . . 49.7 


5 " " . . . 


. . . 139.0 


15 " "... 


. . . 46.4 


6 " " . . . 


. . . 116.0 


20 " " . . . 


. . . 34.8 


7 " " . . . 


. . . 95.0 


25 " " . . . 


. . . 28.0 


8 " " . . . 


. . . 87.0 


30 " " . . . 


. . . 23.2 


9 " " . . . 


. . . 77.0 


40 " " . . . 


. . . 17.6 


10 " " . . . 


. . . 69.6 







From what has been said above concerning birth and mor- 
tality rates it follows that normally there will be a not incon- 
siderable excess of births over deaths. An excess of deaths over 
births would indicate social disease or extraordinary disturbances. 
In modern times we have no instance in which deaths have 
exceeded births in any large district for a series of years. Great 
epidemics or wars would be required to produce such a result. It 
is somewhat unusual, also, for emigration from any district to be 
so large as to outweigh the natural excess of births over deaths. 

But there is no particular rate of increase which can be called 
the normal rate. Birth rates in Europe vary from 25 to 50, and 
death rates vary from 17 to 38 ; while very different combina- 
tions of birth and death rates are possible, even though the 
highest birth rates are never accompanied by the lowest death 
rates. Our actual rate of increase at one time or in one country 
may be several times that occurring at another time or in 
another country. 

It is much to be regretted that we cannot investigate the 
growth of population in earlier generations and centuries. In 
the greater part of Europe our census records do not begin until 



THE LAW OF POPULATION 271 

the third decade of the nineteenth century ; and before that time 
we have scattered and unsatisfactory data. For more remote 
times we have only such conclusions as can be drawn from 
casually. recorded facts and figures gathered in a few localities. 
In Europe at large it is probable that the population is about 
twice as large as it was a century ago. This would seem to 
indicate an annual increase of 6.9 persons per 1000. From 
1820 to 1880 the population increased from 200,000,000 to 
330,000,000, a yearly rate of over 8 per 1000. For Sweden we 
have adequate and satisfactory data reaching back to about the 
middle of the eighteenth century ; and in that country the popu- 
lation stood at 1,785,727 in 1704, and 4,735,000 in 1887, — an 
increase of 164 per cent, or an annual rate of 7.4 per 1000. 
******** 

At various dates since 1816 the number of inhabitants within 
the present boundaries of the German Empire has stood as follows: 

Vkar Inhaiutants Rate of Ykaklv Yeah Iniiahitants Rate f)F Yeakly 





(Millions) 


Increase 




(MiLLION.S) 


Increase 


181fi . 


. 24.83 . 




1855 . 


. 36.11 . . 


, . 4.0 


1820 . 


. 26. 2! » . 


. . 14.3 


1860 . 


. 37.74 . , 


, . 8.8 


1825 . 


. 28.11 . 


. . 13.4 


1865 . 


. 39.65 . 


. . 9.9 


1830 . 


. 29.51 . 


. . 9.8 


1870 . 


. 40.81 . , 


. 5.8 


18.15 . 


. 30.03 . 


. . 9.4 


1875 . 


. 42.72 . , 


. . 9.2 


1840 . 


. 32.78 . 


. . 11.6 


1880 . 


. 45.23 . . 


, . 11.4 


1845 . 


. 34.. 3!) . 


. . 9.6 


1885 . 


. 46.94 . . 


. 7.0 


1850 . 


. 35.30 . 


. . 5.7 









According to these figures the aggregate population increased 
22,000,000 in 69 years, or 88.6 per cent, the average yearly 
increase being 0.96 per cent or 9.6 per 1000. ... In the various 
five-year periods the average yearly rate of increase ranges 
from 4 to 14.3 per 1000, a fact which illustrates the variability 
of the rate of growth at different times. Equally large are the 
differences between the various German states. Between 1816 
and 1885 the kingdom of Saxony increased from 1,178,000 
inhabitants to 3,179,000, an aggregate increase of 170 per cent 
and a yearly rate of 15.4 per 1000. Bavaria advanced from 
3,708,000 to 5,146,000, an aggregate growth of 46.7 per cent 
and a yearly rate of 5.7 per 1000. Wurttemberg advanced from 



272 



SELECTED READINGS IN ECONOMICS 



1,410,000 to 1,995,000, an aggregate increase of 41.3 per cent 
and a yearly rate of 5.1 per 1000. Old Prussia advanced from 
10,350,000 to 23,400,000, an aggregate gain of 126 per cent 
and a yearly rate of 12.5 per 1000. 

In 1821 the United Kingdom of Great Britain and Ireland 
had 21,270,000 inhabitants; in 1881 it had 35,200,000. Here 
the aggregate increase was 65.6 per cent, and the yearly rate 
8.7 per 1000; but in England and Wales alone the increase 
was from 12,000,000 to 25,960,000, an aggregate gain of 116.4 
per cent and a yearly rate of 13.7 per 1000. 

In 1821 France, including Alsace-Lorraine but excluding Nice 
and Savoy, had 29,720,000 inhabitants ; and in 1881, excluding 
Alsace-Lorraine and including Nice and Savoy, her inhabitants 
numbered 37,670,000. Making allowance for the change in 
boundaries, the real increase during these sixty years was ap- 
proximately from 28,800,000 to 37,000,000, — a total increase 
of 28.4 per cent and a yearly gain of 4.2 per 1000. From 1876 
to 1886 the population of France rose from 36,990,000 to 
38,200,000, a total gain" of 3.5 per cent and a yearly rate of 
3.5 per 1000. The natural increase by the excess of births 
over deaths amounted to but 920,634, an average of 92,063 
or 2.5 per 1000. The increase of the population above these 
figures was due to immigration. In Germany during the same 
period the excess of births over deaths was 5,389,000, or 5.8 
times as great as in France. 

In other countries of Europe the growth of population in the 
nineteenth century is shown in the following table : 



Country 


Date 


Population 
(Millions) 


Aggregate 
Increase 


Yearly 

Rate 
(I'EU 1000) 


Austria 

Hungary 

Italy 

Sweden 

Belgium 

Netherlands 

Switzerland 

Denmark 


1820-1887 
1820-1880 
1861-1887 
1820-1887 
1846-1887 
1829-1887 
1837-1888 
1840-1880 


14.20 to 23.44 
12.88 to 15.73 
25.01 to 30.26 
2.58 to 4.73 
4.33 to 5.97 
2.61 to 4.45 
2.19 to 2.92 
1.28 to 1.96 


64.0% 
22.1% 
21.1% 
83.4% 
38.0% 
70.0% 
33.0% 
53.0% 


7.7 
3.4 
7.3 
9.5 
8.0 
9.5 
5.8 
11.2 



THE LAW OF POPULATIOK 



273 



The groAvth of population in the United States admits of no 
comparison with European conditions. From 1790 to 1880 the 
census showed an increase from 3.9 millions to 50.4 millions, 
more than a twelvefold increase and a yearly gain of 28.8 per 
1000.1 j^ jg ^Q ]rjg remembered that during this time the area 
of the country grew from 819,000 to 3,561,000 square miles, and 
that at least 12,000,000 immigrants were added to the popu- 
lation. Now since 88 per cent of the immigrants were under 
forty years of age, — most of them able-bodied persons no longer 
subject to the dangers of childhood, — it follows that they con- 
tributed as much to the growth of numbers as 24,000,000 
immigrants of mixed ages, such as are found in a normal popu- 
lation, Avould have contributed. . . . 

At the opposite extreme, Ireland offers an example of a decreas- 
ing population. Her inhabitants numbered 8.2 millions in 1841, 
6.55 millions in 1851, 5.8 millions in 1861, 5.4 millions in 1871, 
5.2 millions in 1881, and 4.8 millions in 1888. Meanwhile the 
excess of births over deaths had been about 2.2 millions, so that 
the total loss of population by immigration was over 5,000,000. 
The causes of this singular phenomenon, which cannot be par- 
alleled in any other country, do not need to be considered here. 

^ The figures by decades are as follows : 





Censits Years 


POI'LLATION Ex- 
n.l'DINO Al.A.SK.V, 

Hawaii, Indian 

Teuritokv, 
Ini>ianRe.serva- 

Tlnxs, ETf. 


Ixckease 




Number 


Per Cent 


1900 


75,568,686 

62.622,250 

50,1,55,783 

38,5.58,371 

31,443,321 

23,191,876 

17,069,453 

12,866.020 

9,638,453 

7,239,881 

5,308,483 

3,929,214 


12,946,436 
12,466,467 
11,597,412 
7,115.0.50 
8,251,445 
6,122,42.-! 

4.2a-?,4.-« 

3,'J27,.567 
2,,398,572 
1,931,398 
1,379,269 


20.7 


18fiO 


24.9 


1880 


30.1 


1870 


22 6 


1860 


35 6 


laTO 


35 9 


1840 


32 7 


1830 


33 5 


1820 


a3 1 


1810 


36 4 


1800 .... 


35 1 


1790 









En. 



274 SELECTED READINGS IN ECONOMICS 

Leaving out of account the exceptional cases of Ireland and 
the United States, the figures for Europeali countries show that 
the growth of population may vary greatly in different countries 
and different periods of time. The examples of Hungary (with 
a rate of growth of 3.4 per 1000) and Saxony (with a rate of 
15.4 per 1000) show that the growth of one country may be 
four or five times as rapid as that of another. It appears, too, 
that, in spite of greater losses by emigration, the Germanic 
peoples have far outstripped the Romanic ; that the states of 
Middle and Northern Germany have surpassed the South Ger- 
man states ; and that in general the countries of Northern 
Europe have grown more rapidly than those of Southern 
Europe. Upon the whole, a yearly increase of less than 5 per 
1000 may be considered small, an increase of from 5 to 7 
per 1000 is moderate, and an increase of more than 10 per 
1000 is very large. ... 

At the present time we may compute in round numbers that, 
upon an average, 12,000,000 children are born in Europe each 
year, that 9,000,000 persons die, that the yearly excess of births 
is 3,000,000, and that of this number 500,000 are lost by 
emigration. The annual increase of population, therefore, is 
2,500,000, which means a yearly gain of 7.6 per 1000, a gain 
of 25,000,000, every 10 years, and a doubling of the population 
every 90 years. 

It is obvious that a yearly increase of 10 per 1000 may 
be had with a birth rate of 40 and a death rate of 30, or 
with a birth rate of 30 and a death rate of 20. It is evi- 
dent, too, that it is not a matter of indifference whether the 
result is reached in the one way or the other, but that it is much 
better to have the increase come from the smaller birth rate 
accompanied by the smaller death rate. In this respect the 
Scandinavian countries have an advantage over the German. 
Norway had an average of 30.5 births and 17.3 deaths between 
1865 and 1878, while the German Empire between 1872 and 
1879 had 41.4 births and 28.6 deaths. The least favorable con- 
dition is found in Hungary, where between 1865 and 1877 there 
were a birth rate of 41.8, a death rate of 38, and a yearly 



THE LAW OF POPULATION 275 

increase of only '>.8 per 1000. Anionrr tlie Geiinaii states 
Wiirtteniberg lias the highest birth and death rates and the 
smallest excess of births over deaths. 



2. The Doctrine of Malthus^ 

/. Statement of the Subject. Ratios of the Increase of 
Population and Food 

In an inquiry concerning the improvement of society the mode 
of conducting the subject which naturally presents itself is, 

1. To investigate the causes that have hitherto impeded the 
progress of mankind towards happiness ; and 

2. To examine the probability of the total or partial removal 
of these causes in the future. 

To enter fully into this question and to enumerate all the 
causes that have hitherto influenced human improvement would 
be much beyond the power of an individual. The principal ob- 
ject of the present essay is to examine the effects of one great 
cause intimately united with the very nature of man ; which, 
though it has been constantly and powerfully operating since 
the commencement of societ}', has been little noticed by the 
writers Avho have treated this subject. The facts which estab- 
lish the existence of this cause have, indeed, been repeatedly 
stated and acknowledged ; but its natural and necessary effects 
have been almost totally overlooked ; though probably among 
these effects may be reckoned a very considerable portion of 
that vice and misery, and of that unequal distribution of the 
bounties of nature, which it has been the unceasing object of 
the enlightened philanthropist in all ages to correct. 

The cause to which I allude is the constant tendency in all 
animated life to increase beyond the nourishment prepared for it. 

It is observed by Dr. Franklin that there is no bound to the 
prolific nature of plants or animals but what is made by their 

' From An Essay on the Principle of Population, chaps, i and ii, by T. M. 
Malthus [sixth edition, 1826]. The essay was originally published in 1798. 
For differences between the first and later editions see Ashley's edition [New 
York, 1895]. 



i 



276 SELECTED EEADINGS IN ECONOMICS 

crowding and interfering with each other's means of subsist- 
ence. Were the face of the earth, he says, vacant of other 
plants, it might be gradually sowed and overspread with one 
kind only, as for instance with fennel ; and were it empty of 
other inhabitants, it might in a few ages be replenished from 
one nation only, as for instance with Englishmen. 

This is incontrovertibly true. Through the animal and vege- 
table kingdoms nature has scattered the seeds of life abroad 
with the most profuse and liberal hand, but has been compara- 
tively sparing in the room and the nourishment necessary to 
rear them. The germs of existence contained in this earth, if 
they could freely develop themselves, would fill millions of 
worlds in the course of a few thousand years. Necessity, that 
imperious, all-pervading law of nature, restrains them within 
the prescribed bounds. The race of plants and the race of ani- 
mals shrink under this great restrictive law ; and man cannot 
by any efforts of reason escape from it. 

In plants and irrational animals the view of the subject is 
simple. They are all impelled by a powerful instinct to the in- 
crease of their species ; and this instinct is interrupted by no 
doubts about providing for their offspring. Wherever therefore 
there is liberty, the power of increase is exerted ; and the super- 
abundant effects are repressed afterwards by want of room 
and nourishment. 

The effects of this check on man are more complicated. Im- 
pelled to the increase of his species by an equally powerful 
instinct, reason interrupts his career, and asks him whether 
he may not bring beings into the world for whom he cannot 
provide the means of support. If he attend to this natural 
suggestion, the restriction too frequently produces vice. If he 
hear it not, the human race will be constantly endeavoring 
to increase beyond the means of subsistence. But as, by that 
law of our nature which makes food necessary to the life of 
man, population can never actually increase beyond the lowest 
nourishment capable of supporting it, a strong check on popula- 
tion, from the difficulty of acquiring food, must be constantly 
in operation. This difficulty must fall somewhere, and must 






THE LAW OF POPI LAT1U>^ 277 

4 

necessarily be severely felt in some or other of the various 
forms of misery, or the fear of misery, by a large portion 
of mankind. 

That population has this constant tendency to increase beyond 
the means of subsistence, and that it is kept to its necessary 
level by these causes will sufficiently appear from a review of 
the different states of society in which man has existed. But 
before we proceed to this review the subject will, perhaps, be 
seen in a clearer light, if we endeavor to ascertain what would 
be the natural increase of population if left to exert itself with 
perfect freedom, and what might be expected to be the rate of 
increase in the productions of the earth under the most favor- 
able circumstances of human industry. 

It will be allowed that no country has hitherto been known 
where the manners were so pure and simple, and the means of 
subsistence so abundant, that no check whatever has existed to 
early marriages from the difficulty of providing for a family, and 
that no waste of the human species has been occasioned by 
vicious customs, by towns, by unhealthy occupations, or too 
severe labor. Consequently, in no state that we have yet 
known has the power of population been left to exert itself 
with perfect freedom. 

Whether the law of marriage be instituted or not, the dictates 
of nature and virtue seem to be an early attachment to one 
woman ; and where there were no impediments of any kind in 
tlie way of an union to which such an attachment would lead, 
and no causes of depopulation afterwards, the increase of the 
human species would be evidently much greater than any in- 
crease which has hitherto been known. 

In the Northern States of America, where the means of sub- 
sistence have been more ample, the manners of the people more 
pure, and the checks to early marriages fewer than in any of 
the modern states of Europe, the population has been found to 
double itself, for above a century and a half successively, in less 
than twenty-five years. Yet, even during these periods, in some 
of the towns the deaths exceeded the births, a circumstance 
which clearly proves that, in those parts of the countiy wliich 



278 SELECTED EEADINGS IN ECONOMICS 

supplied this deficiency, the increase must have been much more 
rapid tlian the general average. 

In the back settlements, where the sole employment is agri- 
culture, and vicious customs and unwholesome occupations are 
little known, the population has been found to double itself in 
fifteen years. Even this extraordinary rate of increase is prob- 
ably short of the utmost power of population. Very severe 
labor is requisite to clear a fresh country; such situations are 
not in general considered as particularly healthy ; and the in- 
habitants, probably, are occasionally subject to the incursions 
of the Indians, which may destroy some lives, or at any rate 
diminish the fruits of industry. 

According to a table of Euler, calculated on a mortality of 
one to thirty-six, if the births be to the deaths in the proportion 
of three to one, the period of doubling will be only twelve years 
and four fifths. And this proportion is not only a possible sup- 
position, but has actually occurred for short periods in more 
countries than one. 

Sir William Petty supposes a doubling possible in so short a 
time as ten years. 

But, to be perfectly sure that we are far within the truth, we 
will take the slowest of these rates of increase, a rate in which 
all concurring testimonies agree, and which has been repeatedly 
ascertained to be from procreation only. 

It may safely be pronounced, therefore, that population, when 
unchecked, goes on doubling itself every twenty-five years, or 
increases in a geometrical ratio. 

The rate according to which the productions of the earth may 
be supposed to increase it will not be so easy to determine. , Of 
this, however, we may be perfectly certain, • — that the ratio of 
their increase in a limited territory must be of a totally different 
nature from the ratio of the increase of population. A thousand 
millions are just as easily doubled every twenty-five years by 
the power of population as a thousand. But the food to sup- 
port the increase from the greater number will by no means be 
obtained with the same facility. Man is necessarily confined 
in room. When acre has been added to acre till all the fertile 



THE LAW OF POPULATION 279 

land is occupied, the yearly increase of food must depend upon 
the melioration of the land already in possession. This is a 
fund which, from the nature of all soils, instead of increasing, 
must be gradually diminishing. But population, could it be sup- 
plied with food, would go on with unexhausted vigor; and the 
increase of one period would furnish the power of a greater in- 
crease the next, and this without any limit. 

From the accounts we have of China and Japan, it may 
be fairly doubted whether the best-directed efforts of human 
industry could double the produce of these countries even once 
in any number of years. There are many parts of the globe, 
indeed, hitherto uncultivated and almost unoccupied, but the 
right of exterminating, or driving into a corner where they 
must starve, even the inhabitants of these thinly-peopled regions, 
will be questioned in a moral view. The process of improving 
their minds and directing their industry would necessarily be 
slow ; and during this time, as population would regularly keep 
pace with the increasing produce, it would rarely happen that 
a great degree of knowledge and industry would have to operate 
at once upon rich unappropriated soil. Even where this might 
take place, as it does sometimes in new colonies, a geometrical 
ratio increases with such extiaordinary rapidity that the advan- 
tage could not last long. If the United States of America con- 
tinue increasing, which they certainly will do, though not with the 
same rapidity as formerly, the Indians will be driven further and 
further back into the countr}-, till the whole race is ultimately 
exterminated and the territory is incapable of further extension. 

These observations are, in a degree, applicable to all the parts 
of the earth where the soil is imperfectly cultivated. To exter- 
minate the inhabitants of the greatest part of Asia and Africa 
is a thought that could not be admitted for a moment. To civil- 
ize and direct the industry of the various tribes of Tartars and 
negroes would certainly be a work of considerable time, and of 
variable and uncertain success. 

Europe is by no means so fully peopled as it might be. In 
Europe there is the fairest chance that human industry may 
receive its best direction. The science of agriculture has been 



280 SELECTED KEADINGS IN ECONOMICS 

much studied in England and Scotland, and there is still a 
great portion of uncultivated land in these countries. Let us 
consider at what rate the produce of this island might be sup- 
posed to increase under circumstances the most favorable to 
improvement. 

If it be allowed that by the best possible policy, and great 
encouragement to agriculture, the average produce of the island 
could be doubled in the first twenty-five years, it will be allow- 
ing, probably, a greater increase than could with reason be 
expected. 

In the next twenty-five yenTS it is impossible to suppose that 
the produce could be quadrupled. It would be contrary to all 
our knowledge of the properties of land. The improvement of 
the barren parts would be a work of time and labor; and it 
must be evident,, to those who have the slightest acquaintance 
with agricultural subjects, that in proportion as cultivation 
extended, the additions that could yearly be made to the for- 
mer average produce must be gradually and regularly dimin- 
ishing. That we may be the better able to compare the increase 
of population and food, let us make a supposition which, with- 
out pretending to accuracy, is clearly more favorable to the 
power of production in the earth than any experience we have 
had of its qualities will warrant. 

Let us suppose that the yearly additions which might be 
made to the former average produce, instead of decreasing, 
which they certainly would do, were to remain the same ; and 
that the produce of this island might be increased every twenty- 
five years by a quantity equal to what it at present produces. 
Tlie most enthusiastic speculator cannot suppose a greater 
increase than this. In a few centuries it would make every 
acre of land in the island like a garden. 

If this supposition be applied to the whole earth, and if it be 
allowed that the subsistence for man which the earth affords 
might be increased every twenty-five years by a quantity equal 
to what it at present produces, this will be supposing a rate of 
increase much greater than we can imagine that any possible 
exertions of mankind could make it. 



THE LAW OF POPULATION 281 

It may be fairly pronounced, therefore, that considering the 
present average state of the earth, the means of subsistence, 
under circumstances the most favorable to human industry, 
could not possibly be made to increase faster than in an arith- 
metical ratio. 

The necessary effects of these two different rates of increase, 
when brought together, will be very striking. Let us call the 
population of this island eleven millions ; and suppose the pres- 
ent produce equal to the easy support of such a number. In 
the first twenty-five years the population would be twenty-two 
millions, and the food being also doubled, the means of sub- 
sistence would be equal to this increase. In the next twenty- 
five years the population would be forty-four millions, and the 
means of subsistence only equal to the support of thirty-three 
millions. In the next period the population would be eighty- 
eight millions, and the means of subsistence just equal to the 
support of half that number. And at the conclusion of the 
first century the population would be a hundred and seventy- 
six millions, and the means of subsistence only equal to the 
support of fifty-five millions, leaving a population of a hundred 
and twenty-one millions totally unprovided for. 

Taking the whole earth instead of this island, emigration 
would of course be excluded ; and, supposing the present pop- 
ulation equal to a thousand millions, the human species would 
increase as the numbers, 1, 2, 4, 8, 16, 32, 64, 128, 256, and 
subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9. In two centuries the 
population would be to the means of subsistence as 256 to 9 ; 
in tliree centuries, as 4096 to 13 ; and in two thousand years the 
difference would be almost incalculable. 

In this supposition no limits whatever are placed to the 
produce of the earth. It may increase forever, and be greater 
than any assignable quantity; yet still, the power of population 
being in every period so much superior, the increase of the 
human species can only be kept down to the level of the means 
of subsistence by the constant operation of the strong law of 
necessity, acting as a check upon the greater power. 



282 SELECTED READINGS IN ECONOMICS 

//. Of the Greneral Checks to Population, and the Mode 
of their Operatio7i 

The ultimate check to population appears then to be a want 
of food arising necessarily from the different ratios according 
to which population and food increase. But this ultimate check 
is never the immediate check, except in cases of actual famine. 
"The immediate check may be stated to consist in all those 
customs, and all those diseases, which seem to be generated by 
a scarcity of the means of subsistence ; and all those causes, 
independent of this scarcity, whether of a moral or physical 
nature, which tend prematui*ely to weaken and destroy the 
human frame. 

These checks , to population, which are constantly operat- 
ing with more or less force in every society, and keep down 
the number to the level of the means of subsistence, may be 
classed under two general heads, — the preventive, and the 
positive checks. 

The preventive check, as far as it is voluntary, is peculiar to 
man, and arises from that distinctive superiority in his reasoning 
faculties which enables him to calculate distant consequences. 
The checks to the indefinite increase of plants and irrational 
animals are all either positive, or, if preventive, involuntary. 
But man cannot look around him and see the distress which 
frequently presses upon those who have large families ; he can- 
not contemplate his present possessions or earnings, which he 
now nearly consumes himself, and calculate the amount of each 
share, when with very little addition they must be divided, per- 
haps, among seven or eight, without feeling a doubt whether, if 
he follow the bent of his inclinations, he may be able to support 
the offspring which he will probably bring into the world. In 
a state of equality, if such can exist, this would be the simple 
question. In the present state of society other considerations 
occur. Will he not lower his rank in life, and be obliged to 
give up in great measure his former habits ? Does any mode of 
employment present itself by which he may reasonably hope to 
maintain a family ? Will he not at any rate subject himself to 



THK LAW OF POPULATION 283 

greater difficulties and more severe labor than in liis single 
state ? Will he not be unable to transmit to liis children the 
same advantages of education and improvement that he had 
himself possessed? Does he even feel secure that, should he 
have a large family, his utmost exertions can save them from 
rags and squalid poverty, and their consequent degradation in 
the community? And may he not be reduced to the grating 
necessity of forfeiting his independence, and of being obliged to 
the sparing hand of charity for support? 

These considerations are calculated to prevent, and certainly 
do prevent, a great number of persons in all civilized aiations 
from pursuing the dictate of nature in an early attachment to 
one woman. 

If this restraint does not produce vice, it is undoubtedly the 
least evil that can arise from the principle of population. Con- 
sidered as a restraint on a strong natural inclination, it must be 
allowed to produce a certain degree of temporary uii happiness, 
but evidently slight compared with the evils which result from 
any of the other checks to population, and merely of the same 
nature as many other sacrifices of temporary to permanent grat- 
ification, which it is the business of a moral agent continually 
to make. 

When tills restraint produces vice, the evils which follow are 
but too conspicuous. A promiscuous intercourse to such a 
degree as to prevent the birth of children seems to lower, in 
the most marked manner, the dignity of human nature. It can- 
not be without its effect on men, and nothing can be more obvi- 
ous than its tendency to degrade the female character and to 
destroy all its most amiable and distinguishing characteristics. 
Add to which, that among those unfortunate females with 
which all great towns abound more real distress and aggra- 
vated misery are, perhaps, to be found, than in any other 
department of human life. 

When a general corruption of morals with regard to the sex 
pervades all the classes of society, its effects must necessarily 
be to poison the springs of domestic happiness, to weaken con- 
jugal and parental affection, and to lessen the united exertions 



284 SELECTED EEA.DINGS IN ECONOMICS 

and ardor of parents in the care and education of their chil- 
dren, — effects which cannot take place without a decided 
diminution of the general happiness and virtue of the society ; 
particularly as the necessity of art in the accomplishment and 
conduct of intrigues and in the concealment of their conse- 
quences necessarily leads to many other vices. 

The positive checks to population are extremely various, and 
include every cause, whether arising from vice or misery, which 
in any degree contributes to shorten the natural duration of 
human life. Under this head, therefore, may be enumerated all 
unwholesome occupations, severe labor and exposure to the 
seasons, extreme poverty, bad nursing of children, great towns, 
excesses of all kinds, the whole train of common diseases and 
epidemics, wars, plague, and famine. 

On examining these obstacles to the increase of population 
which I have classed under the heads of preventive and posi- 
tive checks, it will appear that they are all resolvable into 
moral restraint, vice, and misery. 

Of the preventive checks, the restraint from marriage which 
is not followed by irregular gratifications may properly be termed 
moral restraint.^ 

Promiscuous intercourse, unnatural passions, violations of the 
marriage bed, and improper arts to conceal the consequences of 
irregular connections are preventive' checks that clearly come 
under the head of vice. 

Of the positive checks, those which appear to arise unavoid- 
ably from the laws of nature may be called exclusively misery, 

1 It will be observed that I here use the term moral in its most confined 
sense. By moral restraint I would be understood to mean a restraint from 
marriage from prudential motives, with a conduct strictly moral during the 
period of this restraint ; and I have never Intentionally deviated from this sense. 
When I have wished to consider the restraint from marriage unconnected with 
its consequences, I have either called it prudential restraint, or a pai't of the 
preventive check, of which indeed it forms the principal branch. In my review 
of the different stages of society I have been accused of not allowing sufficient 
weight in the prevention of population to moral restraint ; but when the confined 
sense of the term, which I have here explained, is adverted to, I am fearful that 
I shall not be found to have erred much in this respect. I should be very glad 
to believe myself mistaken. 



THE LAW OF POPULATION 285 

and those which we obviously bring upon ourselves, such as 
wars, excesses, and many others which it would be in our power 
to avoid, are of a mixed nature. They are brought upon us by 
vice, and their consequences are misery. 

The sum of all these preventive and positive checks taken 
together forms the immediate check to population ; and it is 
evident that in every country where the whole of the procre- 
ative power cannot be called into action, the preventive and 
the positive checks must vary inversely as each other ; that is, 
in countries either naturally unhealthy or subject to a great 
mortality, from whatever cause it may arise, the preventive 
check will prevail very little. In those countries, on the con- 
trary, which are naturally healthy, and where the preventive 
check is found to prevail with considerable force, the positive 
check will prevail very little, or the mortality be very small. 

In every country some of these checks are with more or less 
force in constant operation ; yet, notwithstanding their general 
prevalence, there are few states in which there is not a constant 
effort in the population to increase beyond the means of sub- 
sistence. This constant effort as constantly tends to subject the 
lower classes of society to distress, and to prevent any great 
permanent melioration of their condition. 

These effects, in the present state of society, seem to be pro- 
duced in the following manner. We will suppose the means of 
subsistence in any country just equal to the easy support of its 
inhabitants. The constant effort towards population, which is 
found to act even in the most vicious societies, increases the 
number of people before the means of subsistence are increased. 
The food, therefore, which before supported eleven millions, 
must now be divided amongf eleven millions and a half. The 
poor consequently must live much worse, and many of them be 
reduced to severe distress. The number of laborers also l)eing 
above the proportion of work in the market, the price of labor 
must tend to fall, while the price of provisions would at the 
same time tend to rise. The laborer, therefore, must do more 
work to earn the same as he did before. During this season of 
distress the discouragements to marriage and the difficulty of 



286 SELECTED READINGS IN ECONOMICS 

rearing a family are so great that the progress of population is 
retarded. In the meantime the cheapness of labor, the plenty 
of laborers, and the necessity of an increased industry among 
them encourage cultivators to employ more labor upon their 
land, to turn up fresh soil, and to manure and improve more 
completely what is already in tillage, till ultimately the means 
of subsistence may become in the same proportion to the popu- 
lation as at the period from which we set out. The situation 
of the laborer being then again tolerably comfortable, 'the 
restraints to population are in some degree loosened ; and after 
a short period the same retrograde and progressive movements, 
with respect to happiness, are repeated. 

This sort of oscillation will not probably be obvious to com- 
mon view ; and it may be difficult even for the most attentive 
observer to calculate its periods. Yet that in the generality of 
old states some alternation of this kind does exist, though in a 
much less marked and in a much more irregular manner than I 
have described it, no reflecting man who considers the subject 
deeply can well doubt. 



CHAPTER X 

THE DIVISION OF LAIJOR 

1. The Views of Adam Smith ^ 

I 

The greatest improvement in the productive powers of labour, 
and the greater skill, dexterity, and judgment with which it is 
anywhere directed or applied, seem to have been the effects of 
the division of labour. 

The effects of the division of labour, in the general busi- 
ness of society, will be more easily understood, by considering 
in what manner it operates in some particular manufactures. 
It is commonly supposed to be carried furthest in some very 
trifling ones ; not perhaps that it really is carried further in 
them than in others of more importance : but in those trifling 
manufactures which are destined to supply the small wants 
of but a small number of people, the whole number of work- 
men must necessarily be small ; and those employed in every 
different branch of the work can often be collected into the 
same workshop, and placed at once under the view of the 
spectator. In those great manufactures, on the contrary, which 
are destined to supply the great wants of the great body of 
the people, every different branch of the work employs so 
great a number of workmen, that it is impossible to collect 
them all into the same workshop. We can seldom see more, at 
one time, than those employed in one single branch. Though, 
in such manufactures, the work may l>e divided into a greater 
number of parts, than in those of a more trifling nature, the 
division is not near so obvious, and has accordingly been 
much less observed. 

' Wealth of Nations, Rk. I, chaps, i and iii. 
287 



288 SELECTED EEADINGS IN ECONOMICS 

To take an example, therefore, from a very trifling manufac- 
ture ; but one in which the division of labour has been very often 
taken notice of, the trade of the pin-maker ; a workman not 
educated to this business (which the division of labour has ren- 
dered a distinct trade), nor acquainted with the use of the 
machinery employed in it (to the invention of which the same 
division of labour has probably given occasion), could scarce, 
perhaps, with his utmost industry, make one pin in a day, and 
certainly could not make twenty. But in the way in which this 
business is now carried on, not only the whole work is a pecu- 
liar trade, but it is divided into a number of branches, of which 
the greater part are likewise peculiar trades. One man draws 
out the wire, another straightens it, a third cuts it, a fourth 
points it, a fifth grinds it at the top for receiving the head: to 
make the head requires two or three distinct operations ; to put 
it on, is a peculiar business ; to whiten the pins is another ; it is 
even a trade by itself to put them into the paper; and the 
important business of making a pin is, in this manner, divided 
into about eighteen distinct operations, which, in some manu- 
factories, are all performed by distinct hands, though in others 
the same man will sometimes perform two or three of them. 
I have seen a small manufactory of this kind where ten men 
only were employed, and where some of them consequently per- 
formed two or three distinct operations. But though they were 
very poor, and therefore but indifferently accommodated with 
the necessary machinery, they could, when they exerted them- 
selves, make among them about twelve pounds of pins in a day. 
There are in a pound upwards of four thousand pins of a mid- 
dling size. Those ten persons, therefore, could make among 
them upwards of forty-eight thousand pins in a day. Each per- 
son, therefore, making a tenth-part of forty-eight thousand pins, 
might be considered as making four thousand eight hundred 
pins in a day. But if they had all wrought separately and inde- 
pendently, and without any of them having been educated to 
this peculiar business, they certainly could not each of them 
have made twenty, perhaps not one pin in a day; that is, cer- 
tainly, not the two hundred and fortieth, perhaps not the four 



THE DIVISION OF LABOR 289 

thousand eight hundredth part of what they are at present 
capable of performing, in consequence of a proper division and 
combination of their different operations. ^ 

In every other art and manufacture, the effects of the division 
of labour are similar to what they are in this very trifling one ; 
though, in many of them, the labour can neither be so much sub- 
divided, nor reduced to so great a simplicity of operation. The 
division of labour, however, so far as it can be introduced, occa- 
sions, in every art, a proportionable increase of the productive 
powers of labour. The separation of different trades and employ- 
ments from one another, seems to have taken place, in conse- 
quence of this advantage. This separation, too, is generally 
carried furthest in those countries which enjoy the highest 
degree of industry and improvement ; what is the w^ork of one 
man in a rude state of society, being generally that of several 
in an improved one. In every improved society, the farmer is 
generally nothing but a farmer ; the manufacturer, nothing but 
a manufacturer. The labour, too, which is necessary to produce 
any one complete manufacture, is almost always divided among 
a great number of hands. How many different trades are em- 
ployed in each branch of the linen and woollen manufactures, 
from the growers of the flax and the wool, to the bleachers and 
smoothers of the linen, or to the dyers and dressers of the cloth L 
The nature of agriculture, indeed, does not admit of so many^ 
subdivisions of labour, nor of so complete a separation of one 
business from another, as manufactures. It is impossible to 
separate so entirely the business of the grazier from that of the 
corn-farmer, as the trade of the carpenter is commonly sepa- 
rated from that of the smith. The spinner is almost always a 
distinct person from the weaver ; but the ploughman, the har- 
rower, the sower of the seed, and the reaper of the corn, are 
often the same. The occasions for those different sorts of labour 
returning with the different seasons of the year, it is impossible 
that one man should be constantly employed in any one of them. 
This impossibility of making so complete and entire a separa- 
tion of all the different branches of labour employed in agri- 
culture, is perhaps the reason why the improvement of the 



290 SELECTED EEADINGS IN ECONOMICS 

productive powers of labour in this art does not always keep 
pace with their improvement in manufactures. The most opu- 
lent nations, indeed, generally excel all their neighbours in agri- 
culture as well as in manufactures ; but they are commonly 
more distinguished by their superiority in the latter than in 
the former. 
\ ******** 

This great increase of the quantity of work, which, in conse- 
quence of the division of labour, the same number of people are 
capable of performing, is owing to three different circumstances : 

I. To the increase of dexterity in every particular workman; 

II. To the saving of the time which is commonly lost in pass- 
ing from one species of work to another ; III. To the invention 
of a great number of machines which facilitate and abridge 
labour, and enable one man to do the work of many. 

/I. The improvement of the dexterity of the workman necessa- 
rily increases the quantity of the work he can perform ; and the 
, division of labour, by reducing every man's business to some one 
I simple operation, and by making this operation the sole employ- 
' ment of his life, necessarily increases very much the dexterity 
of the workman. A common smith, who, though accustomed to 
handle the hammer, has never been used to make nails, if upon 
some particular occasion he is obliged to attempt it, will scarce, 
I am assured, be able to make above two or three hundred in a 
day, and those, too, very bad ones. A smith who has been 
accustomed to make nails, but whose sole or principal business 
has not been that of a nailer, can seldom with his utmost dili- 
gence make more than eight hundred or a thousand nails in a 
day. I have seen several boys under twenty years of age who 
had never exercised any other trade but that of making nails, 
and who, when they exerted themselves, could make, each of 
them, upwards of two thousand three hundred nails in a dayy^ 
The making of a nail, however, is by no means one of the simplest 
operations. The same person blows the bellows, stirs or mends 
the fire as there is occasion, heats the iron, and forges every part 
of the nail. In forging the head too he is obliged to change his 
tools. The different operations into which the making of a pin. 



THE DIVISION OF LABOR 291 

or of ii metal button, is subdivided are all of them much more 
simple, and the dexterity of the person, of whose life it has been 
the sole business to perform them, is usually much greater. The 
rapidity with which some of the operations of those manufactures 
are performed, exceeds what the human hand could, by those who 
had never seen them, be supposed capable of acquiring. 

II. The advantage which is gained by saving the time commonly 
lost in passing from one sort of work to another, is much greater 
than we should at first view be apt to imagine it. It is impossible 
to pass very quickly from one kind of work to another, that is 
carried on in a different place, and with quite different tools. A 
country weaver, who cultivates a small farm, must lose a good 
deal of time in passing from his loom to the field, and from the 
field to his loom. When the two trades can be carried on in the 
same workhouse, the loss of time is no doubt much less. It is 
even in this case, however, very considerable. A man commonly 
saunters a little in turning his hand from one sort of employ- 
ment to another. When he first begins the new work he is 
seldom very keen and hearty ; his mind, as they say, does not 
go it, and for some time he rather trifles than applies to good 
purpose.''^ The habit of sauntering and of indolent careless appli- 
cation, which is naturally, or rather necessarily, acquired by 
every country workman who is obliged to change his work and 
his tools every half hour, and to apply his hand in twenty dif- 
ferent ways almost every day of his life, renders him almost 
always slothful and lazy, and incapable of any vigorous appli- 
cation even on the most pressing occasions. Independent, there- 
fore, of his deficiency in point of dexterity, this cause alone must 
always reduce considerably the quantity of work which he is 
capable of performing. /^ 

III. Everybody must be sensible how much labour is facili- 
tated and abridged by the application of proper machinery. It is 
unnecessary to give any example. I shall only observe, therefore, 
that the invention of all those machines by which labour is so 
much facilitated and abridged, seems to have been originally 
owing to the division of labour. Men are much more likely to 
discover easier and readier methods of attaining any object, 



292 SELECTED EEADINGS IN ECONOMICS 

when the whole attention of their minds is directed towards that 
single object, than when it is dissipated among a great variety 
of things. But in consequence of the division of labour, the whole 
of every man's attention comes naturally to be directed towards 
some one very simple object. It is naturally to be expected, 
therefore, that sorne one or other of those who are employed in 
each particular branch of labour should soon find out easier and 
readier methods of performing their own particular work, wher- 
ever the nature of it admits of such improvement. A great part 
of the machines made use of in those manufactures in which 
labour is most subdivided, were originally the inventions of com- 
mon workmen, who being each of them employed in some very 
simple operation, naturally turned their thoughts towards find- 
ing out easier and readier methods of performing it. Whoever 
has been much accustomed to visit such manufactures, must 
frequently have been shown very pretty machines, which were 
the inventions of such workmen, in order to facilitate and quicken 
their own particular part of the work. In the first steam-engines, 
a boy was constantly employed to open and shut alternately the 
communication between the boiler and the cylinder, according 
as the piston either ascended or descended. One of those boys, 
who loved to play with his companions, observed that, by tying 
a string from the handle of the valve which opened this com- 
munication, to another part of the machine, the valve would 
open and shut without his assistance, and leave him at liberty 
to divert himself with his playfellows. One of the greatest im- 
provements that has been made upon this machine, since it was 
first invented, was in this manner the discovery of a boy who 
wanted to save his own labour.^ 

All the improvements in machinery, however, have by no 
means been the inventions of those who had occasion to use the 
machines. Many improvements have been made by the ingenuity 
of the makers of the machines, when to make them became the 
business of a peculiar trade ; and some by that of those who are 
called philosophers or men of speculation, whose trade it is not 

1 This story, unfortunately, seems to be largely mythical. See Cannon's 
edition of Wealth of Nations, I, 11, footnote. — Ed. 



THE DIVISION OF LABOR 293 

to do anything, but to observe everything ; and who, upon that 
account, are often capable of combining together the powers of 
the most distant and dissimilar objects. In the progress of society, 
philosophy or speculation becomes, like every other employment, 
the principal or sole trade and occupation of a particular class of 
citizens. Like every other employment too, it is subdivided into 
a great number of different branches, each of which affords occu- 
pation to a peculiar tribe or class of philosophers ; and this sub- 
division of employment in philosophy, as well as in every other 
business, improves dexterity and saves time. Each individual 
becomes more expert in his own peculiar branch, more work is 
done upon the whole, and the quantity of science is considerably 
increased by it. 

It is the great multiplication of the productions of all the dif- 
ferent arts, in consequence of the division of labour, which occa- 
sions, in a well-governed society, that universal opulence which 
extends itself to the lowest ranks of the people. Every work- 
man has a great quantity of his own work to dispose of beyond 
what he liiraself has occasion for ; and every other workman 
being exactly in the same situation, he is enabled to exchange 
a great quantity of his own goods for a great quantity, or, what 
comes to the same thing, for the price of a great quantity of 
theirs. He supplies tliem abundantly with what they have 
occasion for, and they accommodate him as amply with what he 
has occasion for, and a general plenty diffuses itself through all 
the different ranks of the society. 

Observe the accommodation of the most common artificer or 
ay-labourer in a civilized and thriving country, and you will per- 
ceive that the number of people of whose industry a part, though 
but a small part, has been employed in procuring him this accom- 
modation, exceeds all computation. The woollen coat, for ex- 
ample, which covers the day-labourer, as coarse and rough as it 
may appear, is the produce of the joint-labour of a great multitude 
of workmen. The shepherd, the sorter of the wool, the wool- 
comber or carder, the dyer, the scribbler, the spinner, the weaver, 
the fuller, the dresser, with many others, must all join their dif- 
ferent arts in order to complete even this homely production. 



294 SELECTED EEADINGS IN ECONOMICS 

How many merchants and carriers, besides, must have been em- 
ployed in transporting the materials from some of those work- 
men to others who often live in a very distant part of the country! 
how much commerce and navigation in particular, how many 
ship-builders, sailors, sail-makers, rope-makers, must have been 
employed in order to bring together the different drugs made 
use of by the dyer, which often come from the remotest corners 
of the world ! What a variety of labour too is necessary in order 
to produce the tools of the meanest of those workmen. To say 
nothing of such complicated machines as the ship of the sailor, 
the mill of the fuller, or even the loom of the weaver, let us con- 
sider only what a variety of labour is requisite in order to form 
that very simple machine, the shears with which the shepherd 
clips the wool. The miner, the builder of the furnace for smelt- 
ing the ore, the feller of the timber, the burner of the charcoal 
to be made use of in the smelting-house, the brick-maker, the 
bricklayer, the workmen who attend the furnace, the mill-wright, 
the forger, the smith, must all of them join their different arts 
in order to produce them. Were we to examine, in the same 
manner, all the different parts of his dress and household furni- 
ture, the coarse linen shirt which he wears next his skin, the 
shoes which cover his feet, the bed which he lies on, and all 
the different parts which compose it, the kitchen grate at which 
he prepares his victuals, the coals which he makes use of for that 
purpose, dug from the bowels of the earth, and brought to him 
perhaps by a long sea and a long land-carriage, all the other 
utensils of his kitchen, all the furniture of his table, the knives 
and forks, the earthen or pewter plates upon which he serves up 
and divides his victuals, the different hands employed in prepar- 
ing his bread and his beer, the glass window which lets in the 
heat and the light, and keeps out the wind and the rain, with 
all the knowledge and art requisite for preparing that beautiful 
and happy invention, without which these northern parts of the 
world could scarce have afforded a very comfortable habitation, 
together with the tools of all the different workmen employed in 
producing those different conveniences ; if we examine, I say, all 
these things, and consider what a variety of labour is employed 



THE DIVISION OF LABOR 295 

about each of them, wc shall be sensible that without the assist- 
ance and co-operation of many thousands, the very meanest per- 
son in a civilized country could not be provided, even according 
to, what we very falsely imagine, the easy and simple manner in 
which he is commonly accommodated. Compared, indeed, with 
the more extravagant luxury of the great, his accommodation 
must no doubt appear extremely simple and easy ; and yet it 
may be true, perhaps, that the accommodation of an European 
Prince does not always so much exceed that of an industrious 
and frugal peasant, as the accommodation of the latter exceeds 
that of many an African King, the absolute master of the lives 
and liberties of ten thousand naked savages. 



Ill 

As it is the power of exchanging that gives occasion to the 
division of labour, so the extent of this division nuist always 
be limited by the extent of that power, or, in other words, by 
the extent of the market.^ When the market is very small, no 
person can have any encouragement to dedicate himself entirely 
to one employment, for want of the power to exchange all that 
surplus part of the produce of his own labour, which is over and 
above his own consumption, for such part of the produce of other 
men's labour as he has occasion for. 

There are some sorts of industry, even of the lowest kind, which 
can be carried on nowhere but in a great town. A porter, for 

1 With tliis it is interesting to compare Xenophon's discussion of the advan- 
tages of division of labor (Cyroptedia, VIII. 2) : " In small towns, the same man 
makes a couch, a door, a plow, and a table ; and frequently the same person is 
a builder, too, and is very well content if he can thus find customers enough to 
maintain him ; and it is impossible for a man who works at many things to do 
them all well ; but in great cities, because there are numbers that want each 
particular thing, one art alone suffices for the maintenance of each individual ; 
and frequently, indeed, not an entire art, but one man makes shoes for men, 
and another for women ; sometimes it happens that one gets a maintenance 
merely by stitching shoes, another by cutting them out, another by cutting out 
upper leathers only, and another by doing none of these things, but simply put- 
ting together the pieces. He, therefore, that is employed in a work of the 
smallest compass, must, of necessity, do it best." 



296 SELECTED READINGS IN ECONOMICS 

example, can find employment and subsistence in no other place. 
A village is by much too narrow a sphere for him ; even an ordi- 
nary market town is scarce large enough to afford him constant 
occupation. In the lone houses and very small villages which 
are scattered about in so desert a country as the Highlands of 
Scotland, every farmer must be butcher, baker, and brewer for 
his own family. In such situations we can scarce expect to find 
even a smith, a carpenter, or a mason, within less than twenty 
miles of another of the same trade. The scattered families that 
live at eight or ten miles distance from the nearest of them, must 
learn to perform themselves a great number of little pieces of 
work, for which in more populous countries they would call in 
the assistance of those workmen. Country workmen are almost 
everywhere obliged to apply themselves to all the different 
branches of industry that have so much affinity to one another 
as to be employed about the same sort of materials. A country 
carpenter deals in every sort of work that is made of wood : a 
country smith in every sort of work that is made of iron. The 
former is not only a carpenter, but a joiner, a cabinet maker, and 
even a carver in wood, as well as a wheelwright, a ploughwright, 
a cart and waggon maker. The employments of the latter are still 
more various. It is impossible there should be such a trade as 
even that of a nailer in the remote and inland parts of the High- 
lands of Scotland. Such a workman, at the rate of a thousand 
nails a day, and three hundred working days in the year, will 
make 300,000 nails in the year. But in such a situation it 
would be impossible to dispose of 1,000, that is, of one day's 
work in the whole year. 

As, by means of water-carriage, a more extensive market is 
open to every sort of industry than what land-carriage alone can 
afford it, so it is upon the sea-coast, and along the banks of 
navigable rivers, that industry of every kind naturally begins 
to subdivide and improve itself, and it is frequently not till 
a long time after that those improvements extend themselves 
to the inland parts of the country. A broad-wheeled waggon, 
attended by two men, and drawn by eight horses, in about 
six weeks' time carries and brings back between London and 



THE DIVISION OF LABOE 297 

Edinburgh near four ton weight of goods. In about the same 
time a ship navigated by six or eight men, and sailing between 
the ports of London and Leith, frequently carries and brings back 
two hundred ton weight of goods. Six or eight men, therefore, 
by help of water-carriage, can carry and bring back in the same 
time the same quantity of goods between London and Edinburgh, 
as fifty broad-wheeled Avaggons, attended by a hundred men, and 
drawn by four hundred horses. I'pon two hundred tons of goods, 
therefore, carried by the cheapest land-carriage from London to 
Edinburgh, there must be charged the maintenance of a hundred 
men for three weeks, and both the maintenance, and, what is 
nearly equal to the maintenance, the wear and tear of four hun- 
dred horses as well as of fifty great waggons. Whereas, upon 
the same quantity of goods carried by water, there is to be charged 
only the maintenance of six or eight men, and the wear and tear 
of a ship of two hundred tons burthen, together with the value 
of the superior risk, or the difference of the insurance between 
land and water-carriage. Were there no other communication 
between those two places, therefore, but by land-carriage, as no 
goods could be transported from the one to the other, except 
such whose price was very considerable in proportion to their 
weight, they could carry on but a small part of that commerce 
which at present subsists between them, and consequently could 
give but a small part of that encouragement which they at present 
mutually afford to each other's industry. There could be little 
or no commerce of any kind between the distant parts of the 
world. What goods could bear the expense of land-carriage be- 
tween London and Calcutta? Or if there were any so precious 
as to be able to support this expense, with what safety could 
they be transported through the territories of so many barbar- 
ous nations? Those two cities, how^ever, at present carry on a 
very considerable commerce with each other, and by mutually 
affording a market, give a good deal of encouragement to each 
other's industry. 

Since such therefore are the advantages of water-carriage, it is 
natural that the first improvements of art and industry should 
be made where this conveniency opens the whole world for a 



298 SELECTED EEADINGS IN ECONOMICS 

market to the produce of every sort of labour, and that they should 
alwaj^s be much later in extending themselves into the inland 
parts of the country. The inland parts of the country can for 
a long time have no other market for the greater part of their 
goods, but the country which lies round about them, and separates 
them from the sea-coast, and the great navigable rivers. The 
extent of their market therefore must for a long time be in pro- 
portion to the riches and populousness of that country, and con- 
sequently their improvement must always be posterior to the 
improvement of that country. In our North American colonies 
the plantations have constantly followed either the sea-coast or 
the banks of the navigable rivers, and have scarce anywhere ex- 
tended themselves to any considerable distance from both. 

2. A Criticism: By W. S. Jevons^ 

The third great advantage which Adam Smith attributes to 
the division of labor is the manner in which it causes labor 
to be facilitated and abridged by the application of proper 
machinery. In his opinion the invention of all those machines 
by which labor is so much facilitated and abridged seems to 
have been originally due to the division of labor. Men, he 
thinks, are much more likely to discover easier and readier 
methods of attaining any object when the whole attention of 
their minds is directed towards that single object than when it 
is dissipated among a great variety of things. The greater part 
of the machines made use of in those manufactures in which 
labor is most subdivided were, according to Smith, originally 
the inventions of common workmen, who, being each of them 
employed in some very simple operation, naturally turned their 
thoughts towards finding out easier and readier methods. The 
only instance, however, which he gives in support of this view 
is that of an engine boy who was employed as a cock boy to 
open and shut the cocks of an old Newcomen engine. This 
boy, named Humphrey Potter, is said to have attached a catch 
and strings in such a manner to the cocks and lever that the 

1 Principles of Economics, pp. 100-103. 



THE DIVISULN (,)F LAHOK 299 

cocks were opened and shut by the rise and fall of the beam. 
The engine thus became self-acting, — an improvement obvi- 
ously of the greatest importance. Even supposing this story 
about Potter to be authentic, one instance does not prove a rule. 
Hundreds of thousands and millions of boys and men are con- 
stantly performing routine operations to which their attention 
is exclusively devoted, but how many in consequence make 
improvements ? It would probably be possible to discover a cer- 
tain number of inventions which actually have been made in 
this manner supposed by Adam Smith, and many more doubt- 
less remain unrecorded and forgotten. It is also true that most 
of the great inventors were originally workingmen of obscure 
origin. Savery was a miner ; Newcomen a blacksmith ; his part- 
ner, Cawley, a glazier ; Watt, a philosopliical instrument maker; 
Arkvvright, a barber; George Stephenson, a colliery engineman. 
... Of the other great inventors, such as Smeaton, Bramah, 
lioberts, Nasmyth, Bessemer, and the like, hardly one but was 
a self-made genius of humble origin. But the first great Eng- 
lish inventor, William Lee, who invented the stocking frame, 
was a clergyman ; Worcester, who first constructed a steam 
engine, was a nobleman, as also Stanhope, who improved the 
printing press. Then, again, it may be easily observed that 
there is little relation between the original trade of the great 
inventors and their subsequent inventions. In fact there hardly 
could be any fixed relation, because most of the great men named 
have made diverse improvements and new creations. Bramah's 
locks bear no relation to his hydraulic press or his ships' block- 
making machine. Bessemer is, of course, chiefly known for his 
great reform in steel making, but he has also made a series of 
other discoveries and inventions, such as dated stamps, patent 
gold powder, etc. James Watt, tlie greatest of all, had nothing 
to do with steam engines except to mend a model of one belong- 
ing to the Glasgow College, and the whole of his all-important 
improvements in the steam engine were the result of intentional 
study, elaborate experiment, and genius. 

Without prolonging a discussion for which there is no sulli- 
cient space or purpose here, it may be safely said that Adam 



300 SELECTED KEADINGS IN ECONOMICS 

Smith's view of the origin of inventions is mistaken. Neverthe- 
less the division of labor has a large part in the matter, because 
in an elaborated and advancing state of industry it allows a man 
of ingenuity to adopt the profession of an inventor. It is indeed 
a hazardous profession, and one to which no man not impelled 
by the force of genius would be likely to devote himself. But 
there can be no question that men like Watt, Smeaton, Bramah, 
Bessemer, not to mention the still more recent names of Whit- 
worth, Armstrong, Siemens, Edison, Bell, and the like, distinctly 
devote themselves to the labor of invention. The principles of 
machine construction are now, indeed, so well understood that 
self-acting machinery can now be designed almost ad libitum 
for the accomplishment of any ordinary work. The proprietors 
of large factories often employ an ingenious draughtsman in 
the capacity of inventor of machines. Of this class of machine 
designers Roberts, of Manchester, was the best example. It 
may be added that this view of the matter is clearly suggested 
by Mr. Smiles, whose admirable works contain most of what 
we know about the history of invention in this country. 

It is also easy to see that the division of labor immensely 
assists invention, and is indeed the necessary condition of any 
considerable advance, by allowing the manufacturer to carry on 
a special kind of industry pn a large scale, and surround him- 
self with extensive special machinery and appliances. This point 
of the matter will be further considei-ed below. 



CHAPTER XI 

THE ACCUMULATION OF CAPITAL: SAVING AND 
SPENDING 

1, The Doctrine of MilP 



A second fundamental theorem respecting capital,^ relates to 
the source from which it is derived. It is the result of saving. 
The evidence of this lies abundantly in what has been already 
said on the subject. But the proposition needs some further 
illustration. 

If all persons w^ere to expend in personal indulgences all that 
they produce, and all the income they receive from what is pro- 

1 Principles of Political Economy, Bk. I, chap. v. 

2 Mill had already defined capital as follows (Bk. I, chap, iv) : 

It has been seen in the preceding chapters that besides the primary and uni- 
versal requisites of production, labor, and natural agents, there is another 
requisite without which no productive operations beyond the rude and scanty 
beginnings of primitive industry are possible : namely, a stock, previously 
accumulated, of the products of former labor. This accumulated stock of the 
produce of labor is termed Capital. The function of capital in production it is 
of the utmost importance thoroughly to understand, since a number of the erro- 
neous notions with which our subject is infested originate in an imperfect and 
confused apprehension of this point. 

Capital, by persons wholly unused to reflect on the subject, is supposed to 
be synonymous with money. To expose this misapprehension would be to 
repeat what has been said in the introductory chapter. Money is no more syn- 
onymous with capital than it is with wealth. Money cannot in itself perform 
any part of the office of capital, since it can afford no assistance to production. 
To do this it n\ust be exchanged for other things ; and anything which is sus- 
ceptible of being exchanged for other things is capable of contributing to pro- 
duction in the .same degree. What capital does for production is to afford the 
shelter, protection, tools, and materials which the work requires, and to feed 
and otherwise maintain the laborers during the process. These are the services 
which present labor requires from past, and from the produce of past, labor. 
Whatever things are destined for thisu.se — destined to supply productive labor 
with these various prerequisites — are capital. — Ed. 

301 



302 SELECTED EEADINGS IN ECONOMICS 

duced by others, capital could not increase. All capital, with a 
trifling exception, was originally the result of saving. I say, 
with a trifling exception ; because a person who labors on his 
own account may spend on his own account all he produces 
without becoming destitute ; and the provision of necessaries 
on which he subsists until he has reaped his harvest, or sold 
his commodity, though a real capital, cannot be said to have 
been saved, since it is all used for the supply of his own 
wants, and perhaps as speedily as if it had been consumed in 
idleness. We may imagine a number of individuals or families 
settled on as many separate pieces of land, each living on what 
their own labor produces, and consuming the whole produce. 
But even these must save (that is, spare from their personal 
consumption) as much as is necessary for seed. Some sav- 
ing, therefore, there must have been, even in this simplest of 
all states of economical relations; people must have produced 
more than they used, or used less than they produced. Still 
more must they do so before they can employ other labor- 
ers, or increase their production beyond what can be accom- 
plished by the work of their own hands. All that any one 
employs in supporting and carrying on any other labor than his 
own, must have been originally brought together by saving ; 
somebody must have produced it and forborne to consume it. 
We may say, therefore, without material inaccuracy, that all 
capital, and especially all addition to capital, are the result 
of saving. 

In a rude and violent state of society it continually happens 
that the person who has capital is not the very person who has 
saved it, but some one who, being stronger, or belonging to a 
more powerful community, has possessed himself of it by plun- 
der. And even in a state of things in which property was pro- 
tected, the increase of capital has usually been, for a long time, 
mainly derived from privations which, though essentially the 
same with saving, are not generally called by that name because 
not voluntary. The actual producers have been slaves, com- 
pelled to produce as much as force could extort from them, and 
to consume as little as the self-interest or the usually very 



THE ACCUMULATION CF CAPITAL 803 

slender humanity of their taskmasters would permit. This kind 
of compulsory saving, however, would not have caused any 
increase of capital, unless a part of the amount had been saved 
over again, voluntarily, by the master. If all that he made his 
slaves produce and forbear to consume had been consumed by 
him on personal indulgences, he would not have increased his 
capital, nor been enabled to maintain an increasing number of 
slaves. To maintain any slaves at all im[)lied a previous saving ; 
a stock, at least of food, provided in advance. This saving may 
not, however, have been made by any self-imposed privation of 
the master, but more probably by that of the slaves themselves 
while free ; the rapine or war, wliich deprived them of their 
personal liberty, having transferred also their accumulations to 
the conqueror. 

There are other cases in which the term saving, with the 
associations usually belonging to it, does not exactly fit the 
operation by which capital is increased. If it were said, for 
instance, that the only way to accelerate the increase of capital 
is by increase of saving, the idea would probably be suggested 
of greater abstinence and increased privation. But it is obvi- 
ous that whatever increases the productive power of labor 
creates an additional fund to make savings from, and enables 
capital to be enlarged not only without additional privation, 
but concurrently with an increase of personal consumption. 
Nevertheless there is here an increase of saving, in the scien- 
tific sense. Though there is more consumed, there is also more 
spared. There is a greater excess of production over consump- 
tion. It is consistent with correctness to call this a greater sav- 
ing. Though the term is not unobjectionable, there is no other 
which is not liable to as great objections. To consume less 
than is produced is saving ; and that is the process by which 
capital is increased ; not necessarily by consuming less, abso- 
lutely. We must not allow ourselves to be so nnich the slaves of 
words as to be unable to use the word " saving " in this sense, 
without being in danger of forgetting that to increase capital 
there is another way besides consuming less, — namely, to pro- 
duce more. 



304 SELECTED EEADINGS IN ECONOMICS 

II 

A third fundamental theorem respecting capital closely con- 
nected with the one last discussed is, that although saved, and 
the result of saving, it is nevertheless consumed. The word 
" saving" does not imply that what is saved is not consumed, nor 
even necessarily that its consumption is deferred ; but only that, 
if consumed immediately, it is not consumed by the person who 
saves it. If merely laid by for future use it is said to be hoarded; 
and while hoarded, is not consumed at all. But if employed as 
capital, it is all consumed, though not by the capitalist. Part is 
exchanged for tools or machinery which are worn out by use ; 
part for seed or materials which are destroyed as such by being 
sown or wrought up, and destroyed altogether by the consump- 
tion of the ultimate product. The remainder is paid in wages 
to productive laborers, who consume it for their daily wants ; or 
if they in their turn save any part, this also is not, generally 
speaking, hoarded, but (through savings banks, benefit clubs, or 
some other channel) reemployed as capital, and consumed. 

The principle now stated is a strong example of the necessity 
of attention to the most elementary truths of our subject ; for 
it is one of the most elementary of them all, and yet no one 
who has not bestowed some thought on the matter is habitually 
aware of it, and most are not even willing to admit it when first 
stated. To the vulgar it is not at all apparent that what is 
saved is consumed. To them every one who saves appears in 
the light of a person who hoards ; they may think such con- 
duct permissible, or even laudable, when it is to provide for a 
family, and the like, but they have no conception of it as doing 
good to other people ; saving is to them another word for keep- 
ing a thing to oneself, while spending appears to them to be 
distributing it among others. The person who expends his for- 
tune in unproductive consumption is looked upon as diffusing 
benefits all around, and is an object of so much favor that some 
portion of the same popularity attaches even to him who spends 
what does not belong to him, — who not only destroys his own 
capital, if he ever had any, but, under pretense of borrowing 



THE ACCUMULATION UF CAPITAL 30o 

and on promise of repayment, possesses himself of capital belong- 
ing to others, and destroys that likewise. 

This popular error comes from attending to a small portion 
only of the consequences that flow from the saving or the spend- 
ing ; all the effects of either which are out of sight, being out of 
mind. The eye follows what is saved into an imaginary strong 
box, and there loses sight of it ; what is spent it follows into 
the hands of tradespeople and dependents, but without reach- 
ing the ultimate destination in either case. Saving (for pro- 
ductive investment) and spending coincide very closely in the 
first stage of their operations. The effects of both begin witli 
consumption, — with the destruction of a certain portion of 
wealtli ; only the things consumed and the persons consuming 
are different. There is, in the one case, a wearing out of tools, 
a destruction of material, and a quantity of food and clothing 
supplied to laborers which they destroy by use ; in the other 
case, there is a consumption, that is to say, a destruction, of 
wines, equipages, and furniture. Thus far the consequence to 
the national wealth has been much the same ; an equivalent 
quantity of it has been destroyed in both cases. But in the 
spending, this first stage is also the final stage ; that particular 
amount of the produce of labor has disappeared, and there is 
nothing left ; while, on the contrary, the saving person, during 
the whole time that the destruction was going on, has had 
laborers at work repairing it who are ultimately found to have 
replaced, with an increase, the equivalent of what has been con- 
sumed. And as this operation admits of l)eing repeated indefi- 
nitely without any fresh act of saving, a saving once made 
becomes a fund to maintain a corresponding number of labor- 
ers in perpetuity, reproducing annually their own maintenance 
with a profit. 

It is the intervention of money which obscures, to an unprac- 
ticed apprehension, the true character of these phenomena. 
Almost all expenditure being carried on by means of money, 
the money comes to be looked upon as the main feature in the 
transaction ; and since that does not perish, but only changes 
hands, people overlook the destruction which takes place in the 



306 SELECTED READINGS IN ECONOMICS 

case of unproductive expenditure. The money being merely 
transferred, they think the wealth also has only been handed 
over from the spendthrift to other peo]jle. But this is simply 
confounding money with wealth. The wealth which has been 
destroyed was not the money, but the wines, equipages, and 
furniture which the money purchased ; and these having been 
destroyed without return, society collectively is poorer by the 
amount. It may be said, perhaps, that wines, equipages, and 
furniture are not subsistence, tools, and materials, and could 
not in any case have been applied to the support of labor ; that 
they are adapted for no other than unproductive consumption, 
and that the detriment to the wealth of the community was 
when they were produced, not when they were consumed. I 
am willing to allow this, as far as is necessary for the argument, 
and the remark would be very pertinent if these expensive lux- 
uries were drawn from an existing stock, never to be replen- 
ished. But since, on the contrary, they continue to be produced 
as long as there are consumers for them, and are produced in 
increased quantity to meet an increased demand, the choice 
made by a consumer to expend five thousand a year in luxuries 
keeps a corresponding number of laborers employed from year 
to year in producing things which can be of no use to produc- 
tion, their services being lost so far as regards the increase of 
the national wealth, and the tools, materials, and food which 
they annually consume being so much subtracted from the gen- 
eral stock of the community applicable to productive purposes. 
In proportion as any class is improvident or luxurious, the 
industry of the country takes the direction of producing luxu- 
ries for their use ; while not only the employment for produc- 
tive laborers is diminished, but the subsistence and instruments 
which are the means of such employment do actually exist in 
smaller quantity. 

Saving, in short, enriches, and spending impoverishes the 
community along with the individual ; which is but saying in 
other words, that society at large is richer by what it expends 
in maintaining and aiding productive labor, but poorer by what 
it consumes in its enjoyments. 



THE ACCUMULATION OF CAPITAL 307 

2. The Seen and the Unseen ' 

In the department of economy, an act, a habit, an institution, 
a law, gives birth not only to an effect, but to a series of effects. 
Of these effects the first one is immediate ; it manifests itself 
simultaneously with its cause, — it is seen. The others unfold 
in succession, — thei/ are not seen : it is well for us, if they 
are foreseen. Between a good and a bad economist this con- 
stitutes the whole difference, — the one takes account of the 
visible effect ; the other takes account both of the effects which 
are seen, and also of those which it is necessary to foresee. 
Now this difference is enormous, for it almost always happens 
that \\hen the immediate consequence is favorable the ultimate 
consequences are fatal, a)id the C07iverse. Hence it follows 
that the bad economist pursues a small present good which 
will be followed by a great evil to come, while the true econ- 
omist pursues a great good to come, at the risk of a small 
present evil. 

In fact it is the same in the science of health, arts, and in 
that of morals. It often happens that the sweeter the first fruit 
of a habit is, the more bitter are the consequences. Take, for 
example, debauchery, idleness, prodigality. When, therefore, a 
man, absorbed in the effect which is seen, has not yet learned to 
discern those which are not seen, he gives way to fatal habits, 
not only by inclination, but by calculation. 

Tins explains the fatally grievous condition of mankind. 
Ignorance surrounds its cradle ; then its actions are determined 
by their first consequences, the only ones which, in its first 
stage, it can see. It is only in the long run that it learns to 
take account of the others. It lias to learn this lesson from two 
very different masters, — experience and foresight. Experience 
teaches effectually, but brutally. It makes us acquainted with 
all the effects of an action by causing us to feel them ; and 
we cannot fail to finish by knowing that fire burns if we have 
buined ourselves. For this rough teacher, I should like, if pos- 
sible, to substitute a more gentle one. T mean foresight. For 

• Fiiiiii Essays in Political Kcouoniy, by Frederic Hastiat (18(»1-1s.'.m). 



308 SELECTED READINGS IN ECONOMirS 

this purpose I shall examine the consequences of certain eco- 
nomical phenomena, by placing in opposition to each other 
those which are seen, and those which are not seeyi. 

J^ I. The Broken Window 

Have you ever witnessed the anger of the good shopkeeper, 
James B., when his careless son happened to break a square of 
glass ? If you have been present at such a scene you will most 
assuredly bear witness to the fact that every one of the spec- 
tators, were there even thirty of them, by common consent 
apparently, offered the unfortunate owner this invariable conso- 
lation : " It is an ill wind that blows nobody good. Everybody 
must live, and what would become of the glaziers if panes of 
glass were never broken ? " 

Now this form of condolence contains an entire theory, which 
it will be well to show up in this simple case, seeing that it is 
precisely the same as that which, unhappily, regulates the greater 
part of our economical institutions. 

Suppose it cost six francs to repair the damage, and you say 
that the accident brings six francs to the glazier's trade, — that it 
encourages that trade to the amount of six francs, — I grant it ; 
I have not a word to say against it ; you reason justly. The 
glazier comes, performs his task, receives his six francs, rubs his 
hands, and, in his heart, blesses the careless child. All this is 
that which is seen. 

But if, on the other hand, you come to the conclusion, as 
is too often the case, that it is a good thing to break windows, 
that it causes money to circulate, and that the encourage- 
ment of industry in general will be the result of it, you will 
oblige me to call out, " Stop there ! your theory is confined 
to that which is seen; it takes no account of that which is 
not seeny 

It is not seen that as our shopkeeper has spent six francs upon 
one thing, he cannot spend them upon another. It is not seen 
that if he had not had a window to replace, he would, perhaps, 
have replaced his old shoes, or added another book to his library. 



THE ac"(;umulatio:n ok capital ;i09 

In short, he would have employed his six francs in some way 
which this accident has prevented. 

Let us take a view of industry in general, as affected by this 
circumstance. The window being broken, the glazier's trade is en- 
couraged to the amount of six francs ; this is that which is seen. 

If the window had not been broken, the shoemaker's trade 
(or some other) would have been encouraged to the amount of 
six francs ; this is that which is not seen. 

And if that which is not seen is taken into consideration, be- 
cause it is a negative fact, as well as that which is seen, because 
it is a positive fact, it will be understood that neither industry 
inc/eneral, nor the sum total of national labor is affected, whether 
windows are broken or not. 

Now let us consider James B. himself. In the former sup- 
position, that of the window being broken, he spends six francs, 
and has neither more nor less than he had before, — the enjoyment 
of a window. 

In the second, where we suppose the window not to have 
been broken, he would have spent six francs in shoes, and would 
have had at the same time the enjoyment of a pair of shoes 
and a window. 

Now as James B. forms a part of society, we must come to the 
conclusion that, taking it altogether, and making an estimate 
of its enjoyments and its labors, it has lost the value of the 
broken window. 

Whence we arrive at this unexpected conclusion, " Society 
loses the value of things which are uselessly destroyed " ; and 
we must assent to a maxim which will make the hair of pro- 
tectionists stand on end, — To break, to spoil, to waste, is not 
to encourage national labor ; or, more briefly, " destruction is 
not profit." 

What will you say, Moniteur Industriel — what will you say, 
disciples of good ]\Ir. Chamans, who has calculated with so much 
precision how much trade would gain by the burning of Paris, 
from the number of houses it would be necessary to rebuild ? 

I am sorry to disturb these ingenious calculations, as far as 
their spirit has been introduced into our legislation ; but I beg 



310 SELECTED READINGS IN ECONOMICS 

him to begin them again by taking into the account that ivhich is 
not seen, and phicing it alongside of that which is seeyi. 

The reader must take care to remember that there are not two 
persons only, but three, concerned in the little scene which I have 
submitted to his attention. One of them, James B., represents 
the consumer, reduced by an act of destruction to one enjoyment 
instead of two. Another, under the title of the glazier, shows 
the producer, whose trade is encouraged by the accident. The 
third is the shoemaker (or some other tradesman), whose labor 
suffers proportionably by the same cause. It is this third person 
who is always kept in the shade, and who, personating that which 
is not seen, is a necessary element of the problem. It is he who 
shows us how absurd it is to think we see a profit in an act of 
destruction. It is he who will soon teach us that it is not less 
absurd to see a profit in a restriction, which is, after all, nothing 
else than a partial destruction. Therefore, if you will only go 
to the root of all the arguments which are adduced in its favor, 
all you will find will be the paraphrase of this vulgar saying. 
What would become of the glaziers if nobody ever broke windows ? 

V. Public Works 

Nothing is more natural than that a nation, after having 
assured itself that an enterprise will benefit a community, should 
have it executed by means of a general assessment. But I lose 
patience, I confess, when I hear this economic blunder advanced 
in support of such a project, — "Besides it will be a means of 
creating labor for the workmen." 

The State opens a road, builds a palace, straightens a street, 
cuts a canal ; and so gives work to certain workmen — this is what 
is seen ; but it deprives certain other workmen of work, and this 
is what is not seen. 

The road is begun. A thousand workmen come every morning, 
leave every evening, and take their wages ; this is certain. If 
the road had not been decreed, if the supplies had not been voted, 
these good people would have had neither work nor salary there ; 
this also is certain. 



Till-: ACCUMULATION' OF CAPITAL ;]11 

But is this all? Does not tlie operation, as a wliole, contain 
something else? At the moment when Mr. Dupin announces 
the emphatic words, " The Assembly has adopted," do the 
millions descend miraculously on a moonbeam into the coffers 
of Messrs. Fould and Bineau ? In order that the operation 
may be complete, as it is said, nmst not the State organize 
the receipts as well as the expenditure? Must it not set its tax- 
gatherers and taxpayers to work, the former to gather, and the 
latter to pay ? 

Study the question now in both its elements. While you state 
the destination given by the State to the millions voted, do not 
neglect to state also the destination which the taxpayer would 
have given, but cannot now give, to the same. Then you will 
understand that a public enterprise is a coin with two sides. 
Cpon one is engraved a laborer out of work, with the device, 
tJiat which is not see)i. 

The sophism which this work is intended to refute is the 
more dangerous when aj)plied to public works, inasmuch as it 
serves to justify the most Avanton enterprises and extravagance. 
When a railroad or a bridge are of real utility, it is sufficient to 
mention this utility. But if it does not exist, what do they do ? 
Recourse is had to this mystification, '' We must find work for 
the Avorkmen." 

Accordingly, orders are given that the drains in the Champ-de- 
Mars be made and unmade. The great Napoleon, it is said, 
thought he was doing a very philanthropic work by causing 
ditches to be made and then tilled up. He said, therefore : 
" Wiiat signifies the result? All we want is to see wealth spread 
among the laboring classes." 

But let us go to the root of the matter. We are deceived by 
mone}'. To demand the cooperation of all the citizens in a com- 
mon work, in the form of money, is in reality to demand a con- 
currence in kind ; for every one procures, by his own labor, the 
sum which he is taxed. Now if all the citizens were to be called 
together, and made to execute, in conjunction, a w^ork useful to 
all, this would be easily understood ; their reward would be found 
in the results of the woik itself. 



312 SELECTED HEADINGS IN ECONOMICS 

But after having called them together, if you force them to 
make roads which no one will pass through, palaces which no 
one will inhabit, and this under the pretext of finding them 
work, it would be absurd, and they would have a right to argue, 
" With this labor we will have nothing to do ; we prefer working 
on our own account." 

A proceeding which consists in making the citizens cooperate 
in giving money but not labor, does not, in any way, alter the 
general results. The only thing is, that the loss would react 
upon all parties. By the former, those whom the State employs 
escape their part of the loss by adding it to that which their 
fellow-citizens have already suffered. 

There is an article in our constitution which says : " Society 
favors and encourages the development of labor — by the estab- 
lishment of public works, by the State, the departments, and 
the parishes, as a means of employing persons who are in want 
of work." 

As a temporary measure, on any emergency, during a hard 
winter, this interference with the taxpayers may have its use. 
It acts in the same way as securities. It adds nothing either to 
labor or to wages, but it takes labor and wages from ordinary 
times to give them, at a loss it is true, to times of difficulty. 

As a permanent, general, systematic measure, it is nothing else 
than a ruinous mystification, an impossibility, which shows a 
little excited labor which is seen, and hides a great deal of pre- 
vented labor which is not seen. 



XL Frugality and Luxury 

It is not only in the public expenditure that what is seen eclipses 
what is not seen. Setting aside what relates to political economy, 
this phenomenon leads to false reasoning. It causes nations to 
consider their moral and their material interests as contradictory 
to each other. What can be more discouraging or more dismal ? 

For instance, there is not a father of a family who does not 
think it his duty to teach his children order, system, the habits 
of carefulness, of economy, and of moderation in spending money. 



THE ACCUMULATiOi OF CAPITAL 313 

There is no religion which does not thunder against pomp and 
luxury. This is as it should be ; but, on the other hand, how 
frequently do we hear the following remarks : 
" To hoard is to drain the veins of the people." 
" The luxur}^ of the great is the comfort of the little." 
" Prodigals ruin themselves, but they enrich the State." 
" It is the superfluity of the rich which makes the bread 
of the poor." 

Here, certainly, is a striking contradiction between the moral 
and the social idea. How many eminent spirits, after having 
made the assertion, repose in peace. It is a thing I could never 
understand, for it seems to me that nothing can be more dis- 
tressing than to discover two opposite tendencies in mankind. 
Why, it comes to degradation at each of the extremes : economy 
brings it to misery; prodigality plunges it into moral degrada- 
tion. Happily these vulgar maxims exhibit economy and luxury 
in a false light, taking account, as they do, of those immediate 
consequences which are seen, and not of the remote ones, ichich 
are not seen. Let us see if we can rectify this incomplete view 
of the case. 

Mondor and his brother Aristus, after dividing the paternal in- 
heritance, have each an income of fifty thousand francs. ]\Iondor 
practices the fashionable philanthropy. He is what is called a 
squanderer of money. He renews his furniture several times a 
year ; changes his equipages every month. People talk of his 
ingenious contrivances to bring them sooner to an end ; in short, 
he surpasses the fast livers of Balzac and Alexandre Dumas. 

Thus everybody is singing his praises. It is : " Tell us about 
Mondor ! Mondor forever ! He is the benefactor of the work- 
man ; a blessing to the people. It is true, he revels in dissipa- 
tion ; he splashes the passers-by ; his own dignity and that of 
human nature are lowered a little ; but what of that? He does 
good with his fortune, if not with himself. He causes money to 
circulate ; he always sends the tradespeople away satisfied. Is 
not money made round that it may roll? " 

Aristus has adopted a very different plan of life. If he is not 
an egotist, he is, at any rate, an indivl<hialist, for he considers 



314 SELECTED EEADINGS IN ECONOMICS 

expense, seeks only moderate and reasonable enjoyments, thinks 
of his children's prospects, and, in fact, he economizes. 

And what do people say of him ? " What is the good of a 
rich fellow like him ? He is a skinflint. There is something 
imposing, perhaps, in the simplicity of his life ; and he is humane, 
too, and benevolent, and generous, but he calculates. He does 
not spend his income ; his house is neither brilliant nor bustling. 
What good does he do to the paper hangers, the carriage makers, 
the horse dealers, and the confectioners?" 

These opinions, which are fatal to morality, are founded upon 
what strikes the eye, — the expenditure of the prodigal ; and 
another, which is out of sight, the equal and even superior ex- 
penditure of the economist. 

But things have been so admirably arranged by the Divine 
Inventor of social order, that in this, as in everj^thing else, 
political economy and morality, far from clashing, agree ; and 
the wisdom of Aristus is not only more dignified, but still more 
profitable, than the folly of Mondor. And when I say profitable, 
I do not mean only profitable to Aristus, or even to society in 
general, but more profitable to the workmen themselves, — to the 
trade of the time. 

To prove it, it is only necessary to turn the mind's eye to 
those hidden consequences of human actions which the bodily 
eye does not see. 

Yes, the prodigality of Mondor has visible effects in every 
point of view. Everybody can see his landaus, his phaetons, his 
berlins, the delicate paintings on his ceilings, his rich carpets, 
the brilliant effects of his house. Every one knows that his 
horses run upon the turf. The dinners which he gives at the 
HQtel de Paris attract the attention of the crowds upon the 
boulevards ; and it is said, " That is a generous man ; far from 
saving his income, he is very likely breaking into his capital." 
This is what is seen. 

It is not so easy to see, with regard to the interest of workers, 
what becomes of the income of Aristus. If we were to trace it 
carefully, however, we should see that the whole of it, down to the 
last farthing, affords work to the laborers as certainly as the 



THE ACCUMULATION OF CAPITAL 315 

fortune of Mondor. Only there is this difference : the wanton 
extravagance of Mondor is doomed to be constantly decreasing, 
and to come to an end without fail ; while the wise expenditure 
of Aristus will go on increasing from year to 3'ear. And if this 
is the case, then most assuredly the public interest will be in 
unison with morality. 

Aristus spends upon himself and his family 20,000 francs a 
year. If that is not sufficient to content him, he does not deserve 
to be called a wise man. He is touched by the miseries which 
oppress the poorer classes ; he thinks he is bound in conscience 
to afford them some relief, and therefore he devotes 10,000 francs 
to acts of benevolence. Amongst the merchants, the manufac- 
turers, and the agriculturists, he has friends who are suffering 
under temporary difficulties ; he makes himself acquainted with 
their situation that he may assist them with prudence and 
efficiency, and to this work he devotes 10,000 francs more. 
Then he does not forget that he has daughters to portion, and 
sons for whose prospects it is his duty to provide, and therefore 
he considers it a duty to lay by and put out to interest 10,000 
francs every year. 

The following is a list of his expenses : 

1. Personal expenses 20,000 fr. 

2. Benevolent objects • 10,000 " 

3. Offices of friendship 10,000 " 

4. Saving 10,000 " 

Let US examine each of these items, and we shall see that not 
a single farthing escapes the national labor. 

1. Personal expenses. These, as far as workpeople and trades- 
men are concerned, have precisely the same effect as an equal 
sum spent by Mondor. This is self-evident ; therefore we shall 
say no more about it. 

2. Benevolent objectn. Tlie 10,000 francs devoted to this pur- 
pose benefit trade in an equal degree ; they reach the butcher, 
the baker, the tailor, and the carpenter. The only thing is, that 
the ])reatl, the meat, and the clothing aie not used by Aristus, 
but by those whom he has made his substitutes. Now this simple 



316 SELECTED READINGS IN ECONOMICS 

substitution of one consumer for another in no way affects trade 
in general. It is all one, whether Aristus spends a crown, or 
desires some unfortunate person to spend it instead. 

3. Offices of friendship. The friend to whom Aristus lends 
or gives 10,000 francs does not receive them to bury them; 
that would be against the hypothesis. He uses them to pay for 
goods, or to discharge debts. In the first place, trade is encour- 
aged. Will any one pretend to say that it gains more by Mondor's 
purchase of a thoroughbred horse for 10,000 francs, than by the 
purchase of 10,000 francs' worth of stuffs by Aristus or his friend? 
For, if this sum serves to pay a debt, a third person appears, 
viz. the creditor, who will certainly employ them upon some- 
thing in his trade, his household, or his farm. He forms another 
medium between Aristus and the workmen. The names only 
are changed ; the expense remains, and also the encouragement 
to trade. 

4. Saving. There remain now the 10,000 francs saved; and 
it is here, as regards the encouragement to the arts, to trade, 
labor, and the workmen, that Mondor appears far superior to 
Aristus, although in a moral point of view, Aristus shows him- 
self in some degree superior to Mondor. 

I can never look at these apparent contradictions between 
the great laws of nature without a feeling of physical uneasiness 
which amounts to suffering. * Were mankind reduced to the 
necessity of choosing between two parti as, one of whom injures 
his interest, and the other his conscience, we should have nothing 
to hope from the future. Happily l/his is not the case ; and to 
see Aristus regain his economical superiority, as well as his moral 
superiority, it is sufficient to understand this consoling maxim, 
which is no less true from having a paradoxical appearance, " To 
save is to spend." 

What is Aristus's object in saving 10,000 francs? Is it to 
bury them in his garden ? No, certainly ; he intends to increase 
his capital and his income ; consequently this money, instead of 
being employed upon his own personal gratification, is used for 
buying land, a house, etc., or it is placed in the hands of a mer- 
chant or a banker. Follow the progress of this money in any 



THE ACCUMULATION OF CAPITAL 31 



Oli 



one of these cases, and you will be convinced that through the 
medium of vendors or lenders it is encouraging labor ([uite as 
certainly as if Aristus, following the example of his brother, had 
exchanged it for furniture, jewels, and horses. 

For when Aristus buys lands or rentes for 10,000 francs, he 
is determined by the consideration that he does not want to 
spend this money. This is why you complain of him. 

But, at the same time, the man who sells the land or the rente^ 
is determined by the consideration that he does Avant to spend 
the 10,000 francs in some way ; so that the money is spent in any 
case, either by Aristus, or by others in his stead. 

With respect to the working class, to the encouragement of 
labor, there is only one difference between the conduct of Aristus 
and that of INIondor, Mondor spends the money himself, and 
around him, and therefore the effect is seen. Aristus, spending 
it partly through immediate parties, and at a distance, the effect 
is not seen. But, in fact, those who know how to attribute effects 
to their proper causes will perceive that what is not seen is as 
certain as what is seen. This is proved by the fact that in both 
cases the money circulates, and does not lie in the iron chest of 
the wise man, any more than it does in that of the spendthrift. It 
is, therefore, false to say that economy does actual harm to trade ; 
as described above, it is equally beneficial with luxury. 

But how far superior is it, if, instead of confining our thoughts 
to the present moment, we let them embrace a longer period ! 

Ten years pass away. What is become of Mondor and his 
fortune, and his great popularity? Mondor is ruined. Instead 
of spending 60,000 francs every 5'-ear in the social body, he is. 
perhaps, a burden to it. In any case, he is no longer the delight 
of shopkeepers ; he is no longer the patron of the arts and of 
trade ; he is no longer of any use to the workmen, nor are his 
successors, whom he has brought to want. 

At the end of the same ten years Aristus not only continues 
to throw his income into circulation, but he adds an increasing 
sum from year to year to his expenses. lie enlarges the national 
caj)ital, that is, the fund which sup[)lies wages, and as it is upon 
the extent of this fund that the demand for hands depends, he 



318 SELECTED READINGS IN ECONOMICS 

assists in progressively increasing the remuneration of the work- 
ing class ; and if he dies, he leaves children whom he has taught 
to succeed him in this work of progress and civilization. 

In a moral point of view the superiority of frugality over 
luxury is indisputable. It is consoling to think that it is so in 
political economy, to every one who, not' confining his views to 
the immediate effects of phenomena, knows how to extend his 
investigations to their final effects. 

3. Criticism of the Doctrine of Saving^ 

The process of saving has received but scant attention from 
economic writers. Jevons appears to have held that superfluous 
food and other necessary consumptive goods, in whosesoever 
hands they were, constituted the only true fund of capital in a 
community at any given time. Sidgwick also holds that all sav- 
ings are in the first instance food. That this is not the case will 
appear from the following example : A self-sufficing man pro- 
duces daily foj his daily consumption a quantity of food, etc., 
denoted by the figure 10. Five of this is necessary and 5 super- 
fluous consumption. This man, working with primitive tools, 
discovers an implement which will greatly facilitate his produc- 
tion, but will cost 4 days' labor to make. Three alternatives 
are open to him. He may spend half his working day in produc- 
ing the strictly necessary part of his previous consumption, 5, 
and devote the other half to making the new implement, which 
will be finished in 8 days. Or he may increase the duration of 
his working day by one quarter, giving the extra time to the 
making of his new implement, which will be finished in 16 days; 
Or lastly, he may continue to produce consumptive goods as 
before, but only consume half of them, preserving the other half 
for 8 days, until he has a fund which will suffice to keep him 
for 4 continuous days, which he will devote to making the new 
implement. If he adopts the first alternative, he simply changes 

1 By John A. Hobson. Reprinted, with tlie consent of the publisher, from 
Hobson's Evokition of Modern Capitalism, pp. 185-190. In the Contemporary- 
Science Series, published by the Walter Scott Company [London, 1894]. 



THE Al^ClMULATlUN OF ( APITAL 319 

tlie character of his production, producing in part of his working 
day future goods instead of present consumptive goods. In the 
second he creates future goods by extra labor. In the third case 
only does the saving or new capital take as its first shape food. 
In the same way a community seeking to introduce a more 
"roundabout" method of production requiring new plant, or 
seeking to place in the field of industry a new series of produc- 
tive processes to satisfy some new want, may achieve their object 
by saving food, etc., or by changing for awhile the character of 
their production, or by extra labor. Thus new capital, whether 
from the individual or the community point of view, may take 
either food or any other material form as its first shape. 

Since savings need not take the shape of food or any article 
capable of immediate consumption, Adam Smith and J. S. Mill 
are clearly wrong when they urge in terms almost identical ^ that 
what is saved is necessarily consumed, and consumed as quickly 
as that which is spent. The antithesis of saving and spending 
shows these writers, and the bulk of English economists who 
follow them, are misled, because they regard saving as doing 
something with money, and do not sufficiently go behind the 
financial aspect of putting money into a bank. 

A closer analysis of saving yields the result that, except in 
one of the simple cases taken in our example above, where sav- 
ing implied withholding consumable goods from present con- 
sumption, every act of saving in a complex industrial society 
signifies making, or causing to be made, forms of capital which 
are essentially incapable of present consumption — i.e. future 
or productive goods. 

Each member of an industrial community receives his money 
income as the market equivalent of value created in goods or 
services by the requisites of production, land, capital, labor, which 
he owns. For every pound paid as income an equivalent quantity 
of material or nonmaterial wealth has been already created. 

1 " What is annually saved is as regularly fonsumed as wliat is annually spent, 
and nearly in ilie same time too ; but it is consumed bya differentset of people." 
— Wealth of Nations, p. 149 /< (MiCullocii). •• Everythinjr which is produced is con- 
sumed ; both what is .saved an<l what is .said to be spent, and the former quite as 
quickly as the latter." — Principles of Political Economy, Book I, chap, v, sect, 0, 



320 SELECTED READINGS IN ECONOMICS 

Let A be the owner of a requisite of production, receiving 
X600 a year as income in weekly payments of £10. Before 
receiving each £10 he has caused to come into existence an 
amount of wealth which, if material goods, may or may not be 
still in existence ; if services, has already been consumed. It is 
evident that A may each week consume XIO worth of goods and 
services without affecting the general condition of public wealth. 
A, however, determines to consume only £5 worth of goods and 
services each week, and puts the other X5 into the bank. Now 
what becomes of the £5 worth of goods and services which A 
might have consumed, but refused to consume ? Do they 
necessarily continue to exist so long as A is credited with the 
money which represents their saving ; if so, in what form ? In 
other words, what actually takes place in the world of commerce 
when money income is said to be saved, Avhat other industrial 
facts stand behind the financial fact of A depositing part of his 
income in the bank as savings ? 

To this question several answers are possible. 

1. B, a spendthrift owner of land or capital, wishing to live 
beyond his income, may borrow from the bank each £5 which 
A puts in, mortgaging his property. In this case B spends what 
A might have spent ; B's property (former savings perhaps ?) 
falls into A's hands. A has individually effected a saving rep- 
resented by tangible property, but as regards the community 
there is no saving at all, real or apparent. 

2. C, a fraudulent promoter of companies, may by misrepresen- 
tation get hold of A's saved money, and may spend it for his own 
enjoyment, consuming the goods and services which A might 
have consumed, and giving to A " paper " stock which figures 
as A's savings. Here A has individually effected no saving. 

From the point of view of the community there is no real 
saving (C has consumed instead of A), but so long as the 
" stock " has a market value there is an apparent saving. To 
this category belongs the savings effected if A lends his money 
to a government to be spent on war. F'rom the standpoint of 
the community there is no saving (unless the war be supposed 
to yield an asset of wealth or security), but A's paper stock 



THE ACCUMULATION OF CAPITAL 321 

represents his individual saving. A's saving is exactly balanced 
by the spending of the connuunity in its corporate capacity, A 
receiving a mortgage upon the property of the community.^ 

3. D and E, manufacturers or traders, engaged in producing 
luxuries which A used to buy with his £5 before he took to 
saving, finding their weekly " takings " diminished and being 
reduced to financial straits, borrow A's savings in order to con- 
tinue their business operations, mortgaging their plant and stock 
to A. So long as, with the assistance of A's money, they are 
enabled to continue producing, what they produce is oversupply, 
not needed to supply current consumption, assuming the relation 
between spending and saving in the other members of the com- 
munity remains unaltered. This oversupply is the material repre- 
sentative of A's savings. So far as real capital is concerned there 
is no increase by A's act of saving ; rather a decrease, for along 
with the net reduction in the consumption of luxuries on the 
pai't of the community due to A's action, there must be a fall 
in the value of the capital engaged in the various processes of 
producing luxuries, uncompensated by any other growth of 
values. But by A's saving, new forms of capital exist which 
bear the appearance of capital, though in reality they are " over- 
supply." These empty forms represent A's saving. Of course 
A, with full knowledge of the facts, would only lend to D and 
E up to the real value of their mortgaged capital. When this 
point was reached D and E could get no further advances, and 
their stock and plant would pass into A's hands. From the point 
of view of the community A's action has resulted in the creation 
of a number of material forms of capital which, so long as the 
existing relations between the community's production and con- 
sumption continue, stand as oversupply. 

4. A may hand over his weekly Jj5 to F on security. F by 
purchase obtains the goods which A refused to consume, and may 
use them (or their equivalent in other material forms) as capital 
for further production. If F can with this capital lielp to pro- 
duce articles for which there is an increasing consumption, or 

• An able analysis of the nature of •• iia])er savings " is found in J. M. Robert- 
son, Fallacy of Saving (Sonnenschein). 



322 SELECTED KEADINGS IN ECONOMICS 

articles which evoke and satisfy some new want, then A's action 
will have resulted in saving from the point of view of the com- 
munity, — i.e. there will be an increase of real capital ; forms of 
capital Avhich would otherwise have figured as oversupply have 
the breath of economic life put into them by an increase in 
general consumption. No real difficulty arises from a doubt 
whether the goods and services which A renounced were capable 
of becoming effective capital. The things he renounced were 
luxurious consumptive goods and services. But he could change 
them into effective capital in the following way : Designing 
henceforth to consume only half his income, he would deliberately 
employ half the requisites of production which furnished his 
income in putting extra plant, machinery, etc., into some trade. 
Whether he does this himself, or incites F to do it, makes no 
difference ; it will be done. In this way, by establishing new 
forms of useful capital, A can make good his saving, assuming 
an increase of general consumption. These are the four possible 
effects of A's saving from the point of view of the community : 

1. Nil. 

2. Bogus or "paper" saving. 

3. Over-supply of forms of capital. 

4. .Increase of real capital. 

It appears then that every act which in a modern industrial 
society is saving, from the standpoint of the community, and not 
a mere transfer of " spending " from one person to another, con- 
sists in the production of a form of goods in its nature or position 
incapable of present consumption. 

This analysis of saving convicts J. S. Mill of a double error in 
saying, " Everything which is produced is consumed ; both what 
is saved and what is said to be spent ; and the former quite as 
rapidly as the latter." In the first place, by showing that sav- 
ing from the point of view of the community generally means 
producing something incapable of present consumption, it proves 
that even if what is saved is consumed, it is not consumed as 
quickly as what is spent. Mill seemed to think that what was 
saved was necessarily food, clothing, and so-called finished goods, 
because saving to him was not a process, but a single negative 



THE ACCUMULATiOX OF ('APITAI. 32:] 

act of refusing to buy. Because a man who lias saved lias com- 
mand of an extra stock of food, etc., which he may hand over to 
laborers as real wages, he seems to think that a community 
which saves will have its savings in this form. We see this is 
not the case. Even where in a })rimitive society extra food is 
the first form savings may take, it belongs to the act of saving 
that this food shall not be consumed so soon as it was available 
for consumption. In short, Mill's notion was that savings must 
necessarily mean a storing up of more food, clothing, etc., which, 
after all, is not stored, but is handed over to others to consume. 
He fails to perceive that a person w^ho saves from the social as 
opposed to the individual point of view necessarilj^ jjroduces 
something w^hich neither he nor any one else consumes at once 
— i.e. steam engines, pieces of leather, shop goods. A saving 
w^iich is merely a transfer of spending from A to B is obviously 
no saving from the point of view of the community to which 
both A and B belong. If A, who is said to save, pays w^ages 
to B, who makes a machine which would otherwise not have 
been made, when this machine is made something is saved, 
not before. 

Though jNIill does not seem, in Book I, chapter v, to regard 
increased plant, machinery, etc., as savings, but rather as some- 
tliing for which savings may be exchanged, the more usual 
economic view of savings embodies part of them in plant and 
raw material, etc., and considers the working up of these into 
finished goods as a "consumption.'" But though industrial 
usage speaks of cotton yarn, etc., being consumed when it is 
worked up, the same language is not held regarding machinery, 
nor would any business man admit that his capital was consumed 
by the wear and tear of machinery, and was periodically replaced 
by saving. The wearing away of particular material embodi- 
ments of capital is automatically repaired by a process which is 
not saving in the industrial or the economic sense. No manu- 
facturer regards the expenditure on maintenance of existing 
plant as saving ; what he puts into additional plant alone does 
he reckon savings. It would be well for economists to clearly 
recognize that this business aspect of capital and saving is also 



324 SELECTED EEADINGS IN ECONOMICS 

the consistent scientific aspect. Saving will then be seen to 
apply exclusively to such increased production of plant and 
productive goods as will afterwards yield an increased crop of 
consumptive goods, provided the community is willing to con- 
sume them. Saving is postponed consumption, — i.e. the pro- 
duction of future goods, plant, machinery, raw materials in their 
several stages, instead of commodities suitable for immediate 
consumption. 



CHAPTER XII 
THE ORGANIZATION OF EXCHANGE 
1. Sturbridge Fair in the Eighteenth Century^ 

Having been at Shirhridge-fair when it was in its Height in 
the Month of September^ the Year before I was at Ncicmarket, 
I must say, that it is not only the greatest in the whole Nation, 
but I think in Europe ; nor are the Fair at Leipsick in Saxony, 
the Mart at Frankfort on the Main, or the Fairs at Nuremburg, 
or Augsburg, reputed any way comparable to this at Sturbridge. 

It is kept in a large Corn-field, near Casterton, extending from 
the side of the River Cam, towards the Road, for about half a 
Mile square. 

If the Field be not cleared of the Corn before a certain Day 
in August, the Faii-keepers may trample it under-foot, to build 
their Booths or Tents. On the other Hand, to balance that 
Severity, if the Fairkeepers have not cleared the Field by 
another certain Day in September, the Ploughmen may re-enter 
with Plough and Cart, and overthrow all into the Dirt : and as 
for the Filth, Dung, Straw, &c. left behind by the Fairkeepers, 
which is very considerable, these become the Farmers Fees, and 
make them full Amends for the trampling, riding, carting upon, 
and hardening the Ground. 

It is impossible to describe all the Parts and Circumstances 
of this Fair exactly ; the Shops are placed in Rows like Streets, 
whereof one is called Cheapside ; and here, as in several other 
Streets, are all Sorts of Traders, who sell by Retale, and come 
chiefly from London. Here may be seen Goldsmiths, Toymen, 
Brasiers, Turners, Milaners, Haberdashers, Hatters, Mercers, 
Drapers, Pewterers, China-warehouses, and, in a word, all 

' This description of Sturbridge Fair was written by Daniel Defoe early in 
the eigliteenth century. Tour of Great Hritain, Vol. I, Letter II. 

325 



326 SELECTED READINGS IN ECONOMICS 

Trades tliat can be found in London ; with Coifee-houses, Tav- 
erns, and Eating-houses in great Numbers ; and all kept in 
Tents and Booths. 

This great Street reaches from the Road, which, as I said, 
goes from Cambridge to Newmarket, turning shoi't out of it to 
the Right towards the River, and holds in a Line near half a 
Mile quite down to the River-side. In another Street parallel 
with the Road are the like Roavs of Booths, but somewhat 
larger, and more intermingled with Wholesale Dealers ; and 
one Side, passing out of this last Street to the Left-hand, is a 
great Square, formed of the largest Booths, called the Buddery; 
but whence so called, I could not learn. The Area of this 
Square is from 80 to 100 Yards, where the Dealers have room 
before every Booth to take down and open their Packs, and to 
bring in Waggons to load and unload. 

This Place being peculiar to the Wholesale Dealers in the 
Woolen Manufacture, the Booths or Tents are of a vast Extent, 
having different Apartments, and the Quantities of Goods they 
bring are so great, that the Insides of them look like so many 
BlacJcweU-haUs, and are vast Warehouses piled up with Goods 
to the Top. In this Buddery, as I have been informed, have 
been sold 100,000 Pounds-worth of Woolen Manufactures in 
less than a Week's time ; besides the prodigious Trade carried 
on here by Wholesalemen from London, and all Parts of Eng- 
land, who transact their Business wholly in their Pocket-books ; 
and, meeting their Chapmen from all Parts, make up their 
Accompts, receive Money chiefly in Bills, and take Orders. 
These, they say, exceed by far the Sales of Goods actually 
brought to the Fair, and delivered in Kind ; it being frequent 
for the London Wholesalemen to carry back Orders from their 
Dealers, for 10,000 Pounds-worth of Goods a Man, and some 
much more. This especially respects those People, who deal 
in heavy Goods, as Wholesale Grocers, Salters, Brasiers, Iron- 
merchants, Wine-merchants, and the like ; but does not exclude 
the Dealers in Woolen Manufactures, and especially in Mercery- 
goods of all sorts, who generally manage their Business in 
this Manner. 



THE OKGAXIZATIOX OF EXCHANGE 327 

Here are Clothiers from Halifax^ Leech, Wakefield, and Jfuth- 
ersfielil, in Yorkshire, and from Roehdale, Bury, <S:c, in Lan- 
cashire, with vast Qnantities of Yorkshire Cloths, Kerseys, 
Pennystons, Cottons, &c. with all sorts of Manchester Ware, 
Fustians, and Things made of Cotton Wool ; of which the 
.Quantity is so great, that they told me there were near 1000 
Horse-packs of such Goods from that Side of the Country, 
and these took up a Side and Half of the Duddery at least; 
also a Part of a Street of Booths were taken np with Uphol- 
sters Ware ; such as Tickings, Sackings, Kidderminster Stuffs, 
Blankets, Rugs, Quilts, &c. 

In the JJuddery I saw one Warehouse, or Booth, consist- 
ing of six Apartments, all belonging to a Dealer in Norwich 
Stuffs only, who, they said, had there above 20,000 1. ■^''alue in 
those Goods. 

Western Goods had their Share here also, and several Booths 
were filled with Serges, Duroys, Druggets, Shalloons, Canta- 
loons, Devonshire Kersies, &c. from Exeter, Taunton, Bristol, 
and other Parts West, and some from London, also. 

But all this is still outdone, at least in Appearance, by two 
Articles, which are the Peculiars of this Fair, and are not exhib- 
ited until the other Part of the Fair, for the Woolen Manufac- 
ture, begins to close up : these are the WOOL, and the HOPS. 
There is scarce any Price fixed for Hops in England, till they 
know how they sell at Sturhridge-fair. The Quantity that 
appears in the Fair is indeed prodigious, and they take up a 
large Part of the Field, on which the Fair is kept, to them- 
selves : they are brought directly from Chelmsford in Essex, 
from Canterhury and Maidstone in Kent, and from Farnham in 
Surrey ; besides what are brought from London, of the (irowth 
of those and other Places. 

Inquiring why this Fair should be thus, of all other Places 
in England, the Centre of that Trade, and so great a Quan- 
tity of so bulky a Commodity be carried thither so far ; I was 
informed by one thoroughly acquainted with that Matter, That 
Hops for this Part of England grow principally in the two 
Counties of Surrey and Kent, with an Exception only to the 



328 SELECTED EEADINGS IN ECONOMICS 

Town of Chelmsford in Essex; and there are very few planted 
any-where else. 

There are indeed in the West of England some Hops grow- 
ing ; as at Wilton near S(dishnrif, at Hereford and Broomsgrove^ 
near Wales^ and the like ; but the Quantity is inconsiderable, 
and the Places so remote, that none of them come to London. ■ 

Formerly, in the North of England, few Hops were used, 
their Drink being chiefly pale smooth Ale, which required but 
little Hops ; and consequently they planted none North of Trent. 
But, as for some Years past, they not only brew great Quanti- 
ties of Beer in the North, but also use Hops in the brewing 
their Ale, much more than they did before, they all come South 
of Trent to buy their Hops ; and here being vast Quantities 
brought, it is great Part of the back Carriage into Yorkshire, 
Northamptonshire, Derbyshire, Lancashire, and all those Coun- 
ties; nay, of late, since the Union, even so far as Scotland ; for 
I must not omit here also to mention, that the River Grant, or 
0am, which runs close by the North-west Side of the Fair, in 
its Course from Cambridge to Ely, is navigable ; and that by 
this means all heavy Goods are brought to the Fair-field, by 
Water-carriage from London, and other Parts ; first to the Port 
of Lynn, and then in Baiges up the Ouse, from the Ouse into 
the Cam, and so to the very Edge of the Fair. 

In like manner great Quantities of heavy Goods, and Hops 
among the rest, are sent from tlie Fair to Lynn by Water, and 
shipped there for the Humher, to Hull, York, &c. and for Neiv- 
castle upon Tyne, and by Newcastle, to Scotland. Now, as they 
do not yet plant Hops in the North, tho' the Consumption 
there is great, and increasing daily, this is one Reason Avhy at 
Stui^hridgefair there is so great a Demand for them : besides 
there were very few Hops, if any worth naming, growing in all 
the Counties even on this Side Trent, above 40 Miles from 
London, those Counties depending on Sturhridgefair for their 
Supply : so the Counties of Suffolk, Norfolk, Cambridge, Hunt- 
ingdon, Northampton, Lincoln, Leicester, Rutland, and even to 
Stafford, Warwick, and Worcestershire, bought most of, if not 
all, their Hops at Sturbridge-fair. 



THE ORGANIZATION OF FA'CHANGK 329 

This is a Testimony of the prodigious Resort of the trading 
People of all Parts of England to this Fair ; where surprising 
Quantities of Hops have formerly been sold. 

The Article of Wool is of several Sorts ; but principally 
Fleece Wool, out of Lincolnshire, where the longest Staple is 
found, the Sheep of those Parts being of the largest Breed. 

The Buyers are chiefly the Manufacturers of Norfolk, /Suffolk, 
and Essex ^ and it is a prodigious Quantity they buy. 

Here I saw what I had not observed in any other County of 
England, a Pocket of Wool ; which seems to have been at first 
called so in Mockery, this Pocket being so big, that it loads a 
whole Waggon, and reaches beyond the most extreme Parts of 
it, hanging over both before and behind ; and these ordinarily 
weigh a Ton or 2500 Pound Weight of Wool, all in one Bag. 

The Quantity of Wool only, which has been sold at this 
Place at one Fair, has been said to amount to 50 or 60,000 1. 
in Value ; some say, a great deal more. 

By these Articles a Stranger may take some Guess at the im- 
mense Trade which is carried on at this Place ; what prodigious 
Quantities of Goods are bought and sold, and what a vast Con- 
course of People are seen here from all Parts of England. 

I might proceed to speak of several other Sorts of English 
Manufactures, which are brought hither to be sold ; as all Sorts 
of wrought Iron, and Brass Ware from Birmingham ; edged 
Tools, Knives, &c. from Sheffield ; Glass Wares, and Stockens, 
from Nottingham and Leicester ; and unaccountable Quantities 
of other Things of similar Value every Morning. 

To attend this Fair, and the prodigious Crouds of People 
which resort to it, there are sometimes no less than 50 Hack- 
ney Coaches, which come from London, and ply Night and 
Morning to carry the People to and from Cambridge ; for there 
the Gross of them lodge ; nay, which is still more strange, 
there are Wherries brought from London on Waggons, to ply 
upon the little River Cam, and to row People up and down, 
from the Town, and from the Fair, as Occasion presents. 

It is not to be wondered at, if the Town of Cambridge can- 
not receive or entertain the Numbers of People that come to 



330 SELECTED READINGS IN ECONOMICS 

this Fair; for not Cambridge only, but all the Towns round 
are full ; nay, the very Barns and Stables are turned into Inns, 
to lodge the meaner Sort of People : As for the Fair-people, 
they all eat, drink, and sleep in their Booths, which are so 
intermingled with Taverns, Coffee-houses, Drinking-houses, 
Eating-houses, Cooks Shops, &c. and so many Butchers and 
Higglers from all the neighbouring Counties come in every 
Morning with Beef, Mutton, Fowls, Butter, Bread, Cheese, 
Eggs, and such Things, and go with them from Tent to Tent, 
from Door to Door, that there is no Want of Provisions of any 
Kind, either dressed, or undressed. 

In a word, the Fair is like a well-governed City, and there is 
the least Disorder and Confusion (I believe) that can be seen 
any-where, with so great a Concourse of People. 

Towards the latter End of the Fair, and when the great 
Hurry of Wholesale Business begins to be over, the Gentry 
come in, from all Parts of the County round ; and tho' they 
come for their Diversion, yet it is not a little Money they lay 
out, which generally falls to the share of the Retalers ; such as 
the Toy-shops, Goldsmiths, Brasiers, Ironmongers, Turners, 
Milaners, Mercers, &c. and some loose Coins they reserve for 
the Puppet-shews, Drolls, Rope-dancers, and such-like ; o.f 
which there is no Want. The last Day of the Fair is the 
Horse-fair, where the Whole is closed both with Horse and 
Foot-races, to divert the meaner Sort of People only ; for 
nothing considerable is offered of that Kind, and the late Act, 
I presume, must have put an End to the former. Thus ends 
the whole Fair, and in less than a Week more, scarce any Sign 
is left, that such a Thing has been there, except by the Heaps 
of Dung, Straw, and other Rubbish, which is left behind, trod 
into the Earth, and is as good as a Summer's Fallow for the 
Land ; and, as I have said above, pays the Husbandman well 
for the Use of it. 

I should have mentioned, that here is a Court of Justice 
always open, and held every Day in a Shed built on purpose in 
the Fair : this is for keeping the Peace, and deciding Contro- 
versies in Matters arising from the Business of the Fair. The 



THE ORGANIZATION OF EXCHANGE 381 

Magistrates of the Town of Cambridge are Judges in this Court, 
as being in their Jurisdiction, or they holding it by special 
Privilege. Here they determine Matters in a sunnnary Way, 
as is practised in those we call Pye-Poivder Courts in other 
Places, or as a Court of Conscience ; and they have a final 
Authority without Appeal. 

2. An English Market Town of the Eighteenth Century ' 

From Aberforth we turned West, and went to Leeds, which is 
a large, wealthy, and populous Town, standing on the North 
Side of the River Aire, with great Suburbs on the South Side, 
and both joined by a stately, strong Stone Bridge so large, and 
so wide, that formerly the Cloth-market was kept upon it ; and 
therefore the Refreshment given the Clothiers by the Inn- 
keepers (being a Pot of Ale, a Noggin of Pottage, and a Tren- 
cher of broird or roast Beef, for Two-pence), is called the 
Brigg-sliot to this Day. 

The Increase of the Manufactures, and of the Trade, soon 
made the jNIarket too great to be confined to the Brigg ; so that 
it is now kept in the High Street, beginning from the Bridge, 
and ruiming up North almost up to the Market-house, where 
the ordinary JNlarket for Provisions begins ; which also is the 
greatest of its kind in all the North of England. You may 
judge of the Plenty of it, when 500 Load of Apples have been 
numbered by the Mayor's Officers in a Day. 

But the Cloth jNIarket is chiefly to be admired as a Prodigy 
of its Kind, and perhaps not to be equalled in the World. The 
Market for Serges at Exeter is indeed a wonderful Thing, and 
the Money returned very great ; but it is there only once a 
Week, whereas here it is every Tuesday and Saturday. 

Early in the Morning, Tressels are placed in two Rows in the 
Street, sometimes two Rows on a Side, cross which Boards are 
laid, which make a kind of temporary Counter on either Side, 
from one End of the Street to the other. 

1 This description of the Town of Leeds was written by Daniel Defoe early 
in the eighteenth century. Tour of Great Britain, Vol. Ill, Letter II. 



332 SELECTED READINGS IN ECONOMICS 

The Clothiers come early in the Morning with their Cloth ; 
and as few bring more than one Piece, the Market-days being 
so frequent, they go into the Inns and Publick-houses with it, 
and there set it down. 

At about Six o' Clock in the Summer, and about Seven in the 
Winter, the Clothiers being all come by that Time, the Market 
Bell at the old Chapel by the Bridge rings ; upon which it 
would surprise a Stranger to see in how few Minutes, without 
Hurry, Noise, or the least Disorder, the whole Market is filled, 
and all the Boards upon the Tressels covered with Cloth, as 
close to one another as the Pieces can lie longways, each Pro- 
prietor standing behind his own Piece, who form a .Mercantile 
Regiment, as it were, drawn up in a double Line, in as great 
Order as a Military one. 

As soon as the Bell has done Ringing, the Factors and Buy- 
ers of all Sorts enter the Market, and walk up and down be- 
tween the Rows, as their Occasions direct. Some of them have 
their foreign Letters of Orders, with Patterns sealed on them, 
in their Hands ; the Colours of which they match, by holding 
them to the Cloths they think they agree to. When they have 
pitched upon their Cloth, they lean over to the Clothier, and 
by a Whisper, in the fewest Words imaginable, the Price is 
stated ; one asks, the other bids ; and they agree or disagree in 
a Moment. 

The Reason of this prudent Silence is owing to the Clothiers 
standing so near to one another ; for 't is not reasonable, that 
one Trader should know another's Traffick. 

If a Merchant has bidden a Clothier a Price, and he will not 
take it, he may go after him to his House, and tell him he has 
considered of it, and is willing to let him have it ; but they 
are not to make any new Agreement for it, so as to remove the 
Market from the Street to the Merchant's House. 

The Buyers generally walk u]3 and down twice on each Side 
of the Rows, and in little more than an Hour all the Business 
is done. In less than half an Hour you will perceive the Cloth 
begin to move off, the Clothier taking it up upon his Shoulder 
to carry it to the Merchant's House. At about half an Hour 



THE ORGAXIZATIOX OF EXCHANGE 333 

after Eight the Market Bell rings again, upon which the Buyers 
immediately disappear, the Cloth is all sold ; or if any remains, 
it is carried back into the Inn. By Nine o'Clock the Boards 
and Tressels are removed, and the Street left at Liberty for the 
Market-people of other Professions, the Linendrapers, Shoe- 
makers, Hard-waremen, and the like. 

Thus you see 10 or 20,000 1. worth of Cloth, and sometimes 
much more, bought and sold in little more than an Hour, the 
Laws of the Market being the most strictly observed that I 
ever saw in any Market in England. 

3. The Organization of the Grain Trade in the United States ^ 
I. The Grain Elevator 

The terminal elevator system in the handling of grain begins 
with the prominence of Chicago as a primary grain market. 
This point has always been the principal terminus in the 
receipt of western grain and in its distribution eastward. The 
terminal warehouses grew out of the necessity of storing the 
grain from the time it was harvested, or shortly thereafter, to 
the time when it Avas required for consumption. The producing 
districts being generally without adequate storing facilities, the 
central markets accumulated vast supplies, provision for which 
was made in the warehouses known as elevators. From 1871 
up to 1887 these elevators were handled in such a manner as 
to be more or less satisfactory to all concerned. They were 
then regarded as terminal freight stations, and were under inde- 
pendent management. That is, they were operated by persons 
engaged in no other business. 

A new factor in the situation began to appear about 188'), 
when the warehousemen of Chicago commenced to deal in grain, 
thereby entering into competition with buyers throughout the 
grain territory. This practice grew so rapidly that within fifteen 
years grain-buying warehousemen absorbed three fourths of the 
business of both buying and selling grain at the Chicago market. 

^ Keprinted from the Report of the Industrial Commission, XIX, 177-184. 



334 SELECTED EEADINGS IN ECONOMICS 

During the first three or four years following the enactment of 
the interstate-commerce law the elevators ceased to be opened on 
equal terms to the public, and passed into the hands of people 
who did a combined grain-buying and warehousing business. 

This combination of pursuits made its representatives much 
more important in the control of the grain movement than any 
grain buyer could be who was not in control of warehousing 
facilities. The railroads in their competition for grain traffic 
found the warehousing grain buyer to be most helpful, particu-' 
larly because of his having established a line of country 
elevators throughout the territory traversed by the railroad, 
and because he was in a position to receive the grain at 
terminal stations and store it promptly or forward it eastward. 
This had the effect of reducing the cost of transferring grain 
at Chicago for eastern destinations. 

Through rates for shipment to the East and to Europe 
enabled the large grain dealers in control of warehouses to 
take advantage of a lower rate than was open to those who 
were simply receiving merchants at Chicago. This difference 
between the through and the local rate is in normal times from 
two to three cents a bushel on corn in favor of the through 
shipment. The line-elevator buyer can afford to pay the farmer 
so much more. 

Under such conditions as these the terminal-elevator system 
of warehousing grain has become a central feature ,of the 
primary gi-ain markets, which are in more or less complete con- 
trol of about half a dozen grain firms. This outcome has been 
mainly due to competition among primary markets, to the 
necessity of reducing the cost of distribution per unit at 
Chicago, and to the difliculty of railroads getting what they 
regarded as their share of the grain traffic without cooperating 
with the leading representatives of the grain trade. 

It is frequently alleged that the prices at which farmers have 
to part with their crops is determined by the combination of 
buyers in terminal markets ; for example, that the card prices 
paid for wheat in South Dakota are fixed by three or four men 
on the Minneapolis Board of Trade. If this is the case, there 



THE ORGAXIZATIOX OF EXCHANGE 335 

does not seem to be niiicli room for competition among buyers, 
especially if these three or four buyers are ready to take the 
bulk of the crops as it comes to the market. A further factor 
in the control of prices is the existence of the local elevators 
under the control of these three or four terminal buyers. On 
the part of the buyers themselves and tlie trade generally it is 
denied that any combination on their part really exists. The 
value of this denial may be inferred from the violent opposition 
which these terminal grain interests manifest when the local 
farmers' associations propose to erect local elevators at points on 
railroads where these leading buyers alone are represented by 
their own elevators. Where elevators have been erected and 
operated as independent elevators, a price of from one to three 
cents more has been paid than at points where no independent 
elevators were in operation. In a large number of cases the 
opposition has taken the form of paying a price high enough to 
drive the independent elevator out of business. Under such 
circumstances the line-elevator interests simply reveal what 
they constantly deny, viz. that there is enough of a monopoly 
in controlling tlie purchases to lose a good deal of money in 
driving out any attempt at competition. There is no fact which 
is inferentially so clear and yet so difficult to prove in courts 
of law as this, that line-elevator companies succeed, in the 
absence of independent elevators, in maintaining a monopoly on 
the basis of common interests among themselves. 

At many points in the grain territory of the West the rail- 
roads intersect one another to such an extent as to afford the 
farmer a choice of routes, but not always competitive advan- 
tages, in shipping grain. As a rule, the farmer sells to the local 
buyer, or to a line elevator at his nearest railroad station. The 
railroads have to deal directly with the local grain buyer or the 
line-elevator owners. As a matter of fact the line elevators are 
in a position of advantage in their relation to the railroads. 
'I'he railroads depend upon them more than upon any other 
commeicial agency for securing the grain trallic of their rail- 
roads. It is not to be supposed tliat for want of paying a few 



336 SELECTED KEADINUS IN ECONOMICS 

cents per bushel by way of a rebate in freight any particular 
road whose dividends are dependent upon this grain traffic 
would hesitate to compensate line elevators to that extent for 
such service. 

The relative importance of the line elevators and local deal- 
ers' elevators, on the leading grain lines of the West, may be 
gathered from the figures showing the ownership of grain ele- 
vators on the Northern Pacific Railway. At 331 stations there 
are 743 elevators, of which the line-elevator companies control 
430, or 57.9 per cent; the local dealers control 286, or 38.5 per 
cent ; and the farmers' associations, 27 elevators, or 3.6 per 
cent of the whole number. The almost unanimous testimony 
of the railroads themselves is that they encourage the erection 
of an adequate number of elevators in grain-producing territory 
to enable them to handle this traffic, regardless of whether the 
elevator is operated by local dealers, line companies, or inde- 
pendent management. Formerly the majority of buyers in the 
country shipped to commission houses at the central market, 
but latterly this practice has been abandoned, until fully 80 
per cent of the grain that now moves to the interior markets is 
bought by the large grain concerns. 

11. The Inspection of Crraifi 

Practically all of the grain arriving at the large markets of 
the interior passes through some system of inspection. The 
inspection officers are, as a rule, selected on the ground of their 
experience and knowledge of the qualities of grain. They usu- 
ally have an adequate force of assistants who are on hand to 
meet the incoming trains loaded with the different kinds of 
grain. Two systems of inspection are in force, one of which 
derives its authority from the state, the other of which is pro- 
vided for by the local boards of trade. 

The grain-inspection department of Illinois does not consider 
it essential to ascertain, when a sample is submitted for inspec- 
tion, what part of the country or what particular state it comes 
from. The fact brought out here is that it is after all milling 



THE ORGA^'IZATION OF EXCHANUE 337 

quality which determines the value of wheat, and not locality, 
except so far as locality may have contributed to the flour value 
of the wheat. In the manufacture of standard brands of flour, 
tastes change, so that the demands of the baking industry vary 
considerably from time to time. In meeting these demands, 
both of the bread consumer and of the baking business, it is 
necessary to mix different qualities of wheat in order to pro- 
duce a brand of flour which will meet the varying demands of 
the consuming market. One of the real motives for mixing 
wheat, therefore, is found in the demands of the baker and the 
bread consumer. 

The farther the wheat gets away from the farmer's hands, 
the more apt it is to be mixed. The value, therefore, of any 
particular locality's wheat is determined by its mixing value 
for milling purposes. A comparatively small proportion of the 
wheat ground into flour escapes the art of the mixer. Conse- 
quently the demand for a law which would prevent the mixing 
of grain would seem to be based on the assumption that the 
producer still has an interest in it after it has entered the chan- 
nels of trade. Such appears, however, not to be the case, and 
any such law passed, presumably in the interest of the producer, 
would probably only add to the expense of distribution and throw 
the burden ultimately upon the consumer. 

Attempts to prevent mixing have therefore ignored the essen- 
tial element in the value of wheat, namely, its milling quality. 
Demands are still heard for a law prohibiting mixing in ele- 
vators. In 1889 the legislature of iNIissouri passed an act of 
such a character. It had the effect of driving the elevator busi- 
ness out of Kansas City, Missouri, into Kansas City, Kansas, 
where a more liberal inspection law was passed. Only a national 
law could reach all markets alike. 

The grain trade, as represented by local dealers throughout 
the central West, is giving increasing attention to methods of 
settling disputes and of determining market standards, includ- 
ing such subjects as uniform grades and weights. Tlie National 
Grain Dealers' Association, at Des Moines, Iowa (October, 1901), 
gave especial attention to the formation of a committee on 



338 SELECTED READINGS IN ECONOMICS 

arbitration. The scheme drafted for discussion provides that local 
committees should act as courts of first resort, the national com- 
mittee's decision should be final, and its jurisdiction should cover 
all matters national, interstate, and interlocal pertaining to the 
grain business wherein any member of the national association 
or affiliated associations had personal interest. The board of 
arbitration should be constituted of three persons, one promi- 
nent receiver or buyer of grain, located at some central or ter- 
minal market, one representative country shipper, and one not 
entirely identified with either of the above divisions of the grain 
trade, and all to be selected with consideration of geographical 
and business conditions. 

Likewise, in the growth of the present system of handling 
grain, organizations of growers have done a great deal to per- 
fect the methods. The National Grain Growers' Association 
has since its organization in 1896 increased its membership to 
2000 and an associate membership to 1645 persons, making in 
all 3645 members. These representatives in their annual con- 
ventions discuss problems and arrive at decisions upon inter- 
state trade, arbitration, boards of appeal, common carriers, state 
and national laws, terminals, central markets, trade rules and 
customs, grain inspection, car inspection, and the weighing of 
grain. It would seem that out of such conditions a national 
system of grading and inspection miglit be constructed. 

III. The Grading of Grain for Export 

The grades for grain at the different markets, both in the 
interior and at the seaboard, are usually established by the grain 
committee of some commercial organization, said rules for grad- 
ing being subject to the approval of the body to which the com- 
mittee is responsible. 

The rules for grading at these different places appear to 
agree quite closely in the standards which they set. In prac- 
tice, however, there are different degrees of strictness. Some 
boards of trade and chambers of commerce require their in- 
spectors to live up squarely to the rules, and others seem to 



THE ORGAXIZATIOX oF KXC'llANOE 339 

allow considerable latitude. It seems to be a general rule that 
the grades of local primary markets which receive at first hand 
grain from territories contiguous thereto are accepted by other 
markets as standard. For instance the trade at Cincinnati 
accepts tlie Minneapolis and the Milwaukee grades in the pur- 
chase of wheat in those markets. To some extent the interior 
grades are accepted at the seaboard markets. 

At the leading Atlantic and Gulf ports, while there is no 
formal agreement among the inspecting otHcials of the different 
ports on the subject of uniformity of grade, it is a fact that 
the inspection authorities keep more or less in touch with one 
another, and are cognizant in a general way of the nature of 
the work performed at all the other ports. The secretary of 
the Boston Chamber of Commerce says : 

" This is due in part to their own efforts to inform them- 
selves of the work done by others, and in part to the fact that 
each shipper of grain from the West for export makes use of 
all the Atlantic ports, and any variation in the standards of 
inspection at the different ports would be brought into imme- 
diate notice." 

Owing to these conditions, namel}', substantial uniformity in 
the rules of inspection and the commercial necessity of any par- 
ticular port keeping its standard up to those observed by other 
ports, there seems to be now in existence a practically uniform 
standard for the exporting grades of cereals at all ports having 
an official inspector. A further step in the direction of more 
complete uniformity has been taken in the recent organization 
of an association of the chief inspectors of the different grain- 
handling centers of the United States. 

An analysis of the rules governing the inspection of grain at 
several of the leading markets shows that the following eight 
characteristics are taken into account in the classification and 
gradation of cereals : (1) locality of production, (2) season of 
sowing, (3) weight, (4) color, (5) cleanliness, (6) purity, (7) dry- 
ness, (8) soundness. 

It is evident that while in practice uniformity of standard 
grades already prevails within certain limits, it is equally true. 



340 SELECTED READINGS IN ECONOMICS 

as the president of the New Orleans Board of Trade remarks, 
"that the difficulty in the way of fixing and enforcing a uni- 
form standard of export grades is due to the difference in the 
eharacter of the grain raised in the ' territories contiguous to 
the various ports of shipment, which makes quite a difference in 
the value of grain technically of the same grade. At the 
present time (November 20, 1901) new-crop wheat from New 
Orleans will bring better prices than wheat from most any 
other port in the country." 

Any effort to put into legal enactment the requirements 
of an export standard grade of grain would have to proceed 
on the basis of this inevitable influence of producing locality 
upon commercial quality. Allowing for this, there does not 
appear to be any good reason why each important kind of grain 
might not be defined for export purposes by weight per bushel V 
and by characteristics of quality, such as soundness, dryness, 
cleanliness, and purity. 

4. Speculation on the Produce Exchanges of the United States^ 

The foregoing chapter has dealt with the organization of 
those speculative markets known as " exchanges." Speculation, 
however, may occur in any market. A purchase or sale, to be 
speculative, does not need to be at a particular place or under 
the control of any particular organization. Nevertheless specu- 
ulation in securities and in a few forms of produce has become 
of such extent that it has assumed an organized form with a 
special machinery. Such speculation is confined to transactions 
of a particular kind made under certain fixed conditions, all of 
which matters are regulated by the exchange on which such 
trading occurs. It is only with this organized speculation of 
the exchanges that the present essay is concerned. In examin- 
ing the rules of such trading it will be convenient to begin 

1 By Henry C. Emery. Reprinted, with the consent of the author and the 
Columbia University Press, from Speculation on the Stock and Produce Ex- 
changes of the United States. In Columbia University Studies in History, 
Economics, and Public Law, Vol. VII [New York, 1896]. 



THE ORGANIZATION OK EXCHANGE 341 

with tlie simplest methods adopted, namely, those for specula- 
tion in produce. 

Speculation in produce is to-day always associated with that 
particular kind of contract known as a " future." The future 
is primarily a contract to be fulfilled at some future time, and 
as such is one of a large class of business transactions. Some 
contracts by nature require a future fulfillment. Such are all 
contracts for services, contracts for building, and the like. 
Some contracts, on the other hand, are entered into long before 
the period set for fulfillment merely because one of the con- 
tracting parties thinks he can secure better terms at the time of 
contract. He fears i)ossible changes in the conditions affecting 
such a contract. If the changes in question are price changes, 
and the contract is for the delivery of goods, the opportunity 
for speculation appears. All time dealings arise from a desire 
to provide in the present for the events of the future. Spec- 
ulative time dealings arise when an anticipated difference in the 
present and future prices of the commodity in question leaves 
room for a possible profit. 

This method of speculation by means of time dealings arose 
later, and has been much less common, than the simple specula- 
tion of buying property outright and holding it for a rise. The 
latter form of speculation is found everywhere and at all times, 
and is entirely independent of any organization or any rules of 
commercial custom. Since Thales cornered the olive presses of 
Miletus,^ or Joseph, still earlier, cornered the grain of Egypt, 
such speculation has been universal. It is not unreasonable to 
believe that time dealings of some kind also arose wherever 
commerce was well developed, especially as a highly advanced 
form of such dealings seems to liave occurred in securities, at 
least, in the days of the Roman Empire. 

It is only, however, in the last few centuries that unques- 
tioned evidence appears of '^future dealings" of a well-devel- 
oped kind. In Holland, early in the seventeenth century, time 

^ See Aristotle, Politics (Jowett's translation, London, 1885), I, ii, § 8. It 
is interesting to note that Thales, being a man of moderate means, worked his 
corner by securing options on the use of the presses at the next harvest season. 



342 SELECTED EEADINGS IN ECONOMICS 

transactions took place in the products of the whale fisheries. 
The great uncertainty of the industry and the consequent 
fluctuation of price led dealers to sell the products of any par- 
ticular voyage long before its result became known. The tulip 
speculation of this period, 1634-1637, is famous. In 1698 time 
dealings in grain were forbidden in Antwerp. Much more 
important than this early dealing was the business which had 
grown up in the first years of the eighteenth century, and 
which was described in 1722 by Ricard, in " Le Negoce d'Am- 
sterdam." ^ At this time practices almost identical with those of 
the modern speculative market were common in the trade in 
grain, coffee, cocoa, saltpeter, and other commodities,^ being 
particularly advanced in form in the case of coffee. 

It was not until the present century, however, that the 
system became widely developed, and not until the great 
expansion of foreign trade in the last fifty years that it became 
of great importance.^ 

The beginnings of the development are found in the case of 
articles of foreign trade, though these earlier time dealings were 
very different from the improved practices of to-day. They 
were sales " for forward delivery," but for the delivery of som^ 
particular lot of goods, and were made on the basis of samples 
forwarded or sometimes on the basis of a fairly recognized 
standard, with allowance made in the payment for any variation 
in quality when the goods were delivered. These sales arose 
from the desire of the dealer to take advantage of a favorable 

1 For the best account of these early dealings see Jacobson, Terminhandel 
in Waaren (translated from the Dutch, Rotterdam, 1889). Cf. also Euchs, 
Der Warenterminhandel, p. 5, reprinted from SchmoUer's Jahrbuch, Vol. XV, 
Heft I. 

Kohn, Der Getreideterminhandel, p. 28 [LeijDzig, 1895], quoting Roscher, says 
that sales of grain before it was threshed, or of herring before they were 
caught, were forbidden in the Hanse cities in 1417. Cf. a similar local ordinance 
in England in 1357, Cunningham, English Industry and Commerce, I, 296. 

2 See Jacobson, op. cit. footnotes to pp. 77, 79, for typical forms of "futures" 
and of "puts and calls," taken from Ricard. 

3 Tooke, for example, writing about 1840, speaks of the speculation that 
occurred in certain spices in 1825, which consisted simply of successive pur- 
chases on a rising market without intermediate deliveries, as a "very rare 
occurrence in the markets for produce." — History of Prices, III, 159. 



THE OUGANlZATiO^' OF EXCHAISGE 343 

price before his goods were ready, as was the case in regard to 
the whale products in Holland. An importer of cotton from this 
country into England, for example, would fear to await the 
arrival of his cargo before selling, and would sell the cotton 
" in transit," or " to arrive." The goods might even be sold 
abroad before leaving the southern ports, in which case the 
contract would read as a sale of so much cotton " for shipment." 
Closely connected with these methods was the development 
of the so-called " ports of call," which are still of importance 
in export trade. These are central ports to which goods are 
originally shipjjed, and where orders are received fixing their 
ultimate destination. Before arrival the consignee at the port 
of call sells the goods in the best market for the moment, 
and on its arrival gives orders for the vessel to proceed to the 
port where the goods have been sold.^ Dealings for forward 
delivery were practiced in tlie domestic trade almost as early as 
in the export trade. In the case of lake and canal shipments, 
grain was largely sold ahead by sample "■ to arrive " and " for ship- 
ment." These are still regular methods of trading ; for example, 
much wheat "to arrive" is bought by the miller, or cotton "to 
arrive " by the spinner ; but to-day these transactions are merely 
for the matter of convenience of delivery. Their old importance 
as insurance against fluctuating prices has disappeared with the 
advent of the improved methods of the speculative market. 

It was only with the development of the warrant and grad- 
ing system, however, that the real future became possible. 
The use of warrants began in England in 1733 in the business 
of the East India Company. Their possibilities so quickly be- 
came evident that at an early date complaints appear of well- 
developed abuses through fraudulent issues. The function of 
the warrant was to transfer ownership without any actual 
transfer of the goods. Secondarily it facilitated advances of 
capital against the goods held. Both these advantages gave a 

^ For example, goods may be consigned "to Cork for orders," with stipu- 
lation in tlip shijiping contract concerning the right of further delivery ; thus 
"privilege l'. K." means that the ship must proceed to any port in the United 
Kingdom designated by the consignee. Ci. also Kohn, op. cit., p. 29. 



344 SELECTED EEADINGS IN ECONOMICS 

stimulus to trade, and there arose an active business in war- 
rants of a more or less speculative nature. They passed easily 
from hand to hand and frequently bore many indorsements 
before finally being presented for the goods. In these cases, 
however, the warrants were special receipts ; that is, they 
represented specific lots deposited, and no established grades 
were fixed in terms of which sales for forward delivery could 
be made ; hence the speculation in them was limited to the 
kind of speculation that might take place through buying and 
selling the goods themselves. It was only in the case of the 
metals that a grading system and general warrants came into 
use. Until this method was adopted no one could sell goods 
before purchasing them, so no organized speculation for future 
delivery could arise. 

In the case of metals, especially iron, the warrant system 
received an important extension. The warrant became a gen- 
eral warrant, that is, a receipt for no particular lot deposited, 
but merely a transferable order for an equal amount of the 
given commodity of the same grade. This was made possible 
by a fixed system of grading, all the iron of the same grade 
being stored in bulk to be taken out on presentation of the 
warrants. Thus the ordinary warrant for Scotch pig read for 
300 lbs. of No. 1 and 200 lbs. of No. 3 pig iron, and was made 
good by a delivery of those amounts and qualities, without 
reference to the specific iron deposited. 

In England warrants issued in terms of recognized grades 
were extended gradually to other commodities. In the United 
States they developed independently in the case of the great 
agricultural staples. What the import trade did for England in 
developing these methods was done for this country by the 
export trade on the one hand and the internal trade on the 
other. The striking increase in the grain and cotton business 
in the United States during the last fifty years has been 
accompanied by the growth of commercial practices that are of 
great interest to the student. Untrammeled by business tradi- 
tions of past centuries, or by the tendency to fit new conditions 
to old methods, the trade of this country has unconsciously 



THE ORGANIZATION OF EXCHANGE 345 

a(l(>}>teil new and direct means for attaining its ends. There 
has l)een little "history" or "evolution " about the process, for 
the practical mind of the business man has simply seized the 
most direct method of facilitating business, a course forced on 
him by the constantly increasing size of his transactions. 

Thus in the growth of receipts at export points is found 
the cause of the adoption of the warehouse sj^stem, while the 
extension of the railroads into the vast wheat fields of the 
West led to a similar storage system there. Grain elevators 
sprang up along the lines for the convenience of the producers, 
the dealers, and the roads themselves. The movement of vast 
crops from such scattered sources was increasingly difficult 
under the old method of selling by sample, and during the 
fifties the system of grading was fully adopted. As wheat was 
presented for storage it was inspected and classified in established 
grades. Receipts (warrants) were issued by the elevator or ware- 
house according to the grade, and became the equivalent in the 
market of the given amount of the given grade. By 1860 most of 
the grain in Chicago was duly graded. These receipts, although 
made in terms of fixed grades, were at first specific orders for 
actual lots deposited. With the enormous storings of grain 
in bulk, however, the difficulties of delivering at any moment 
the actual wheat deposited on a warrant became increasingly 
great. Consequently a change was made to the system of 
general receipts. Grain received by the railroad or the ware- 
house was properly graded and classified, and all the grain of 
the same grade was stored in bulk without regard to particular 
lots. A delivery of the receipt constituted a fulfillment of a 
contract, and in fact the receipts themselves might be considered 
the commodity bought and sold, since they were rights to receive 
a certain amount of the given grade on demand. 

This practice of issuing general receipts began early in the 
West but was not adopted in New York till 1874. It has never 
become established in the cotton trade. Cotton is not stored in 
vast quantities in terminal warehouses, and lacks entirely tlie 
flowing (juality of wheat, which makes the storing and "loading 
out" of that commodity so distinctive a process. 



346 SELECTED READINGS IN ECONOMICS 

The development of the system of grading and of elevator 
receipts is the most important step in the history of the grain 
trade. It is only with such a machinery that an extension of 
forward sales in the modern sense is possible, that is, of forward 
sales of goods having no definite existence until the moment of 
delivery. The goods may or may not be in the possession of the 
seller at the time of the contract. When they are not, and when 
the seller has made no contract to receive them, such a transac- 
tion is called a " short sale." The seller merely contracts to 
deliver a certain amount of a certain grade of the commodity in 
question. Such transactions may be made to any extent as soon 
as a commodity is regularly graded and classified, and receipts 
of a stereotyped kind are accepted as a good delivery. The future 
fulfillment of the contract is assured by the possibility of getting 
such receipts. A full-fledged speculation is at length made 
possible. Without a system of grades and receipts there could 
be no " short selling," and without short selling there could be 
no operations " for the fall," that is, operations in which the 
dealer seeks to secure profit by selling for forward delivery at 
one price and by making the delivery with goods bought later 
at a lower price. Under the old m'ethods " bull " speculation 
alone was possible ; the speculative market is not complete till 
the machinery for " bear " speculation is added. 

It is stated that the future contract proper, however, was 
preceded in the West by a form of dealing which is of peculiar 
interest as an early form, because it is both the form of transac- 
tion which now prevails in our stock exchanges, and one which 
has recently been suggested as a possible substitute for_ the 
present method, of the produce exchanges. This dealing was 
effected through a process of borrowing which had also sprung 
up in the trade in Scotch pig warrants referred to above. When 
much wheat had been stored in the elevators and many receipts 
had been issued, the holders were glad to loan these receipts 
against cash and get the use of the money during the time of 
holding. Thus any one looking for a fall in price could sell wheat 
which he would deliver by means of borrowed, transferable 
receipts properly indorsed by the holder, expecting to be able to 



THE UKGAJN'IZATION OF EXCHANGE 347 

replace these, when demanded, by purchases of receipts at a 
lower price. There was never any obligation to return the iden- 
tical receipts, since all receipts for the same goods were equally 
good. In this way a single receipt might serve for the satisfac- 
tion of any number of contracts. In such a system, however, the 
extension of short sales was limited by existing stocks, that is, 
by the number of receipts for borrowing in the market. The 
possibility of a combination of the holders of wheat always 
put a limit to the number and size of contracts to be settled 
by such loans. 

It was perhaps the hardship of this restraint on trade which 
hastened the adoption of the " future " system. The future 
once established, transactions for future delivery increased 
enormously on those exchanges which formed the chief markets 
of the country. The necessity of uniform and fixed regulations 
for such contracts, and the increased complexity of a growing 
business, led to the gradual growth of a body of rules on the 
various exchanges by which all the details of such contracts 
are regulated. 

It is difficult to say how early dealings in '* futures " in the 
United States began. As soon as they became of importance 
the exchanges adopted rules controlling them. The first appear- 
ance of printed rules for " future " trading in the reports of the 
Chicago Board of Trade was in the report of 1869. Such trad- 
ing had been more or less actively carried on for four or five 
years before. In the evidence before the Congressional Commit- 
tee on Agriculture, in February, 1892, it was stated that the 
government contracts for pork during the Civil War were the 
beginning of future trading. Cases of such trading, however, 
probably occurred in a small way as early as 1855.^ Trading in 
futures began in other western markets, such as St. Louis, Mil- 
waukee, and Toledo, at about the same time, Milwaukee taking 
the lead as early as 1855. In New York it appeared some years 

'Future dealiug was adopted considerably earlier in Europe. Futures were 
sold in some kinds of grain in Berlin by 1832, and some years earlier in France 
and Holland. See Fuchs, Der Warenterminhandel, p. 6, Jacobson, op. cit., 
pp. 85, 89. 



348 SELECTED EEADINGS IN ECONOMICS 

later, not becoming of great importance until the later seventies. 
The first public call in grain on the New York Produce Exchange 
was May 17, 1877, and in pork and lard, January 31, 1876,i but 
future sales occurred some years before these dates.^ 

The first rules were adopted for the petroleum trade, and 
" wash sales " in that commodity were already complained of in 
1873.^ The first future trading of importance in New York was 
in cotton. It began soon after the Civil War, and was due to 
the great uncertainties of the cotton trade at that time. 

It appears that a period of only thirty years covers the real 
growth of the vast body of speculative transactions in this coun- 
try, and of the code of rules which regulates them. Without 
attempting to consider in detail the changes made in these rules, 
it remains to examine their workings as exemplified in the ex- 
change business of to-day. The importance of the grading and 
classification of a commodity thus dealt in has already been em- 
phasized. To be sold " short " a commodity must be representa- 
tive, that is, of the same quality throughout. This property is 
fairly exemplified in grain and cotton and provisions, but is made 
complete by means of an established classification. For contract 
purposes each grade is truly representative. The fixing of grades 
is then a factor of the greatest importance in the speculative 
system. The early grading, however, was of an untrustworthy 
kind until the produce exchanges, as preeminently concerned in 
the matter, began to adopt rules to control it. In some cases the 
exchanges still maintain this control, but several of the West- 
ern States, notably Illinois, Minnesota, and Missouri, containing 
the important markets of Chicago, Minneapolis, and St. Louis, 

1 See Report ofNeio York Produce Exchange, 1881. 

2 Statistics of transactions for early years give an idea of the degree of im- 
portance of such dealing. (From Bexiort of New York Produce Exchange, 1881.) 

Wheat (bushels) Corn (bushels) Lakd (tierces) Margins 

1877 15,061,000 17,862,000 268,000 $673,776 

1879 34,358,000 27,847,000 859,250 2,783,854 

1881 44,492,000 41,912,000 782,000 10,716,838 

Compare with these figures the sales of wheat and corn in 1893, 1,281,811,- 
000 bushels and 239,257,000 bushels. 

3 See report of Produce Exchange of that year. 



THE OKGA^'IZATIUX OF EXCHANGE 349 

have removed the inspection of grain from the exchanges and 
have made it a state function. In these states the inspectors 
are state officials and the grades are fixed by a state board, — in 
Illinois by the Board of Railroad and Warehouse Commissioners. 
In the case of provisions, however, in Cliicago grading is still 
regulated by the Board of Trade. In New York the Produce 
Exchange has provided rules for the inspection and grading of 
all commodities which are dealt in on the board. Warehouses 
are duly authorized, sworn inspectors and gangers are provided, 
grades are established, and receipts of a set form are issued. All 
contracts are made in terms of these grades, and all settlements 
are made by the transfer of these receipts. 

There is a lack of uniformity in the grading of grain in differ- 
ent states and different exchanges, which is a cause of some con- 
fusion to the trade. Each exchange or state board can fix its 
own grades, and can change them at any time. In Chicago 
there are about twenty-five grades of wheat and about ten grades 
of corn, and about the same number in New York. The classifi- 
cation in the two exchanges is, however, not the same. The 
contracts on the produce exchanges specify the grade, and only 
a delivery of that grade, or some higher grade, constitutes a 
settlement of the contract. The provision that a higher than 
contract grade constitutes a good delivery was adopted com- 
paratively recently with a view to avoid " corners." So large a 
proportion of the transactions are made for speculation that in 
the case of wheat and pork special " contract giades " are estab- 
lished, which are understood in all contracts not specifying the 
contrary. " Contract wheat " is in Chicago No. 2 wheat, either 
Spring or Red Winter ; in New York it may be No. 2 Red 
Winter, No. 1 Northern .Spring, or No. 1 Hard Spring.^ In the 

1 The ''contract" or "speculative" grades vary considerably in different 
markets. At Minneapolis there is one such grade, No. 1 Northern ; at Duluth 
two grades, No. 1 Hard and No. 1 Northern, at St. Louis one grade. No. 2 Red 
Winter. P'urther confusion is caused by changing the contract grades. For 
example, at St. Louis when there was a scarcity of No. 2 Red in 1895, a particu- 
lar variety, known as Turkey Red and grown chiefly in Kansas, was made a 
contract wheat, but was abolished after a year's trial. The contract grade must 
of course depend ujion tlie local con<litions, and will embrace the variety or 
varieties con.stitutiiig the chief receipts at the market in question. 



350 SELECTED READINGS IN ECONOMICS 

case of pork, unless the grade is specified in the contract, mess 
pork is understood. On the cotton and the coffee exchanges 
the rules are different. Like the produce exchanges, the New 
York Cotton Exchange provides for a grading and classification 
of cotton with sworn inspectors and the like ; but it has an en- 
tirely different feature in its quotation and revision committees. 
These committees fix the price of the various grades of cotton 
in terms of one particular grade. Middling Uplands. ^ The form 
of contract, therefore, does not specify the delivery of any partic- 
ular grade, but the price reads for Middling Uplands, and any 
grade from Good Ordinary to Fair, inclusive, may be delivered, 
with allowance in the price (as fixed by the Revision Committee) 
for its variation from Middling in quality. Some of the effects 
of such a provision will be considered in a later chapter. 

Besides these fixed stipulations regarding grades that are uni- 
form for all contracts, there are on all the exchanges stereotyped 
conditions regarding the amounts to be delivered. Contracts 
are made in terms of a fixed unit of amount. On the Chicago 
Board of Trade the unit in the case of grain is 5000 bushels. 
Contracts are made in multiples of this unit as a matter of con- 
venience, and all deliveries on contracts are made in lots of 
5000 bushels. The same unit is used in New York. Where 
wheat or corn is sold, however, in " boat-load lots to arrive," 
8000 bushels is understood. In such cases 10 per cent defi- 
ciency or excess from the contract amount does not vitiate the 
delivery. In the regular contract a 5 per cent variation is 
alloM^ed in New York, and a 1 per cent variation in Chicago. 
In any case the excess or the deficiency is to be settled for at 

1 The Quotation Committee consists of seven members, and meets twice a day 
to fix tlie official quotation of Middling Uplands and of all other grades in terms 
of this one, according to the relative differences established by the Committee 
on Revision of Quotations. This latter committee consists of nine members, who 
meet nine times a year, and determine the relation of the values of all other 
grades to the value of Middling, which becomes the basis of the official quotations 
until the next revision. The same is true of the New Orleans Cotton Exchange 
and the New York Coffee Exchange. In the latter exchange the Spot Quotation 
Committee posts daily the values of all grades in terms of No. 7 (Low Ordinary), 
and any question of the revision of the comparative values of the standard is 
referred to the governing board. 



THE ORGANIZATIOX OF EXCHANGE 351 

the closing price of the day of tender. Similar units of sale 
exist for other products ; for example, in mess pork and lard 
250 packages for large sales, 50 packages for smaller sales ; in 
cotton 50,000 pounds "in about 100 bales" ; in coffee 32,500 
pounds ^ in about 250 bags." In the European exchanges simi- 
lar rules exist. In the case of wheat in Berlin, the minimum or 
Schluss is 1000 Zollcentnei', about 1900 bushels, in Budapest 
1000 3Ietercentner, about 3750 bushels, in London 250,000 
pounds. Similar allowances are also made for deliveries in 
slight variation of the contract amount. 

Another feature of the time bargains made on tlie produce 
exchanges is the determination of the time of fulfillment. The 
products which are sold for future delivery come into the mar- 
ket continuously, and yet irregularly, and cannot be promised 
for delivery on any fixed day. At the same time, the date of 
delivery within certain limits is rigidly fixed in the contract. 
In this country the universal practice is to specify the month 
of delivery and allow the seller the option of delivering on what- 
ever day of the month he may prefer. Thus if wheat is sold 
for i\Iay deliver}^ " seller's option," the wheat may be delivered 
on any da}^ of the month, and must be taken and paid for by 
the ultimate purchaser whenever he is served with due notice 
of intention to deliver. On the other hand, if it is not delivered 
before, the seller is bound to deliver on the last day of the 
month. Occasionally the option as to the day of the month 
is given to the buyer, and the contract then reads " buyer's 
option " ; but this is unusual, and seller's option is always 
understood unless otherwise stated. 

There are no regular sales on American exchanges for Avhich the 
option for delivery extends beyond a single month.^ In Europe, 
however, sales are frequently made for a longer option, — for two 
months, or even for four or six months ; in Paris, for example, 
for the four ^jremicrs nojis, January to March, or four chauds 

^ By this is meant the time within which delivery may be made. Futures 
may be sold six months or more ahead, but tlie contract specifies some one 
inontli in which delivery is to be made. Although no longer options than one 
montii are quoted, there are sometimes sales of "year corn," that is, corn to be 
delivered (seller's or buyer's option) at any time within the current year. 



352 SELECTED EEADINGS IN ECONOMICS 

mois, May to August. There are also in Germany and Austria 
specially fixed periods, March and April, called the Friihjahr- 
Termin, and September and October, called the Herhst-Termin. 
The delivery is effected in a similar way, however, as in Ameri- 
can exchanges, the only difference being the length of option. 

The foregoing description of the conditions of the contract 
for future delivery makes it possible to summarize in the form 
of definitions the conclusions reached. It is common experience 
that commerce cares little for definitions, and that accuracy in 
terms is generally secured only after more or less has been writ- 
ten on a subject of this nature. The Germans, for example, 
have arrived at a distinct use of terms which we can hardly 
equal unless we go beyond the familiar language of business. 
The " future," as distinguished from other forms of time deal- 
ings, evidently depends upon the existence of warehouse re- 
ceipts issued in terms of fixed and accepted grades, by which 
means a commodity is made entirely representative. It also 
depends upon an organized market, for without strict regula- 
tions from a central body the grading and classification of 
commodities would be impossible, and the difference in form 
of contract would be too confusing to admit of any great 
extension of that kind of business. It is then perhaps correct 
to define a " future " as a contract for the future delivery of 
some commodity, without reference to specific lots, made under 
the rules of some commercial body in a set form, by which the 
conditions as to the unit of amount, the quality, and the time of 
delivery are stereotyped, and only the determination of the total 
arpount and the price is left open to the contracting parties. 
At least futures not so made are a rare exception. 

Another important class of transactions are the dealings "for 
cash." These " cash " or " spot " contracts are merely the out- 
right sale and purchase of goods for immediate delivery.^ They 
do not necessarily imply a cash payment, as the seller and buyer 
can make their own arrangements as to the giving of credit. 

1 In the midst of the transactions on the board actual delivery of the receipts 
at the moment of contract is evidently impossible, but' "spot" contracts are 
stereotyped in form, and delivery under the rules is postponed until the close of 
business on that day. 



THE ukga:nizati()^^ of exchange 353 

They do, however, represent actual goods available in the mar- 
ket at the moment. It is a mistake, nevertheless, to associate 
" spot " dealings with " actual business," and futures with spec- 
ulation. Spot dealings may be purely speculative, as where a 
person buys and sells in order to prolit by daily fluctuations in 
the spot market, or buys "spot stuff" outright to hold for a 
rise, or, finally, makes cash purchases to settle on future con- 
tracts previously made. On the other hand, contracts for future 
delivery are as much a part of trade contracts as cash sales are 
a part of speculative contracts. It may be by futures that the 
dealer sells and the miller buys his wheat, or that the merchant 
sells and the manufacturer buys his cotton. 

The amount of futures sold on the exchanges, however, far 
exceeds the amount of cash dealings. The figures for the Pro- 
duce and Cotton Exchanges of New York for 1895 are : ^ 

AVheat Cotton 

"futures," . 1,44;],87'),000 bushels "futures," . 03,828,300 bales 

"spot," . . . 43,40r),07G " "spot," . . . 240,456 " 

When it is remembered that the unprecedented wheat crop 
for 1891 in the United States was little more than 600,000,000 
bushels, it will be seen that the annual sales on the New York 
Exchange alone far exceed the amount of the annual crop. Yet 
the New York market is small compared with that of Chicago. 
No comparative figures of spots and futures are available for the 
latter market. The amount of clearings on future contracts, how- 
ever, under the method of clearing differences to be described 
below, gives some idea of the enormous extent to which such trad- 
ings are carried on in Chicago." 

Clearings Balances 

1891 .'5]04,083,529 $32,430,827 

1803 08,707,(568 26,806,077 

1895 78,133,437 28,720,400 

Though the sales in New York are onl}^ a fraction of those 
in Chicago, they are far greater than those of any other grain 
exchange. 

' See UradstreeV s, January 4, 189(i. It is doubtful If tliese figures, though 
official, include all the transactions made. 



CHAPTER XIII 

PEICES 
1. The Relation of Retail Prices to Wholesale^ 

So far as I have been able to ascertain, there are no instances 
of constant and definite relation between wholesale and retail 
prices ; and in most cases, if not always, the fluctuations are 
greater in wholesale than in retail prices. The fluctuations 
in wholesale prices have probably increased in frequency with 
the facilities for rapid carriage and rapidly conveyed intelli- 
gence by telegraph and telephone, but have been kept within 
a narrower range. If all trade were free and all dealers solvent 
and sufficiently wealthy for the purposes of their trade, fluctu- 
ations would be reduced to a minimum, but they would by no 
means cease, so long as buyers and sellers differed in business 
ability, mental constitution, and social habit, qualities which 
enter into and influence prices to a degree greater than might 
at first be thought possible. 

One would expect to find the relation between wholesale and 
retail prices much nearer uniformity in those articles of com- 
merce which are prime necessaries of life, — such as bread, meat, 
fuel, clothes, — than in the case of other articles, because of the 
universal interest in their cost and the greater publicity of their 
wholesale prices arising from such interest. In the case of 
wheat there is probably as near an approach to uniform relation 
in its wholesale price to the retail price of bread as in the case 
of any article of general consumption. The variations in this 
relation are those chiefly which are common to almost every 
case, such as skill in buying, command of capital, and tricks of 
trade within very limited range. One reason of this comparative 

1 By Robert Newman. Reprinted from the Economic Journal, Septem- 
ber, 1897. 

354 



PiucES 355 

uniformity is the small amount of credit given in the retail of 
bread and the absence of any considerable variety in quality 
not easily detected. Of course there is variety, but retail price 
follows the (quality pretty closely. 

Goods rapidly perishable afford good examples of pretty uni- 
form ratio of wholesale to retail prices. Rapid sale is impera- 
tive ; supplies are governed largely by conditions of weather, 
and competition has generally free play. Fruit, table vegetables, 
eggs, and especially lish, are examples which will occur to every 
one. Discrepancies between demand and supply will modify the 
relation of price in this, as in all cases ; the perishable char- 
acter of the articles, too, fixes a sudden limit to the demand, 
whilst it does not materially or so readily affect the supply, — 
the lowest price does not tempt the purchaser to buy more than 
he can immediately use. 

Some less perishable articles of food, such as bacon, butter, 
cheese, appear to be subject to constant variations in wholesale 
price, whilst the retail prices remain steady. In these cases 
there is no excessive variation either in the demand or the sup- 
])ly over such periods as the goods can be safel}' kept, at any 
rate in the case of bacon and cheese ; and the fluctuations in 
wholesale price appear to arise from the partial union or the 
competition of wholesale dealers. 

The relation of wholesale to retail price of butcher's meat is 
more complex. The whole carcass of ox, sheep, or pig is bought 
at a price per stone, according to quality and market fluctu- 
ations, — which are considerable. The retail prices are much 
steadier, though subject to fluctuations as regards particular 
joints ; for example, in winter most of those inferior parts 
usually eaten boiled are sold for prices little below those of 
prime joints, whilst in the summer they sell for little over half 
the price of prime joints. But the more important variations 
in price depend upon the skill of the butcher in gauging the 
means and disposition of his customers. This is of course not 
a peculiarity of butchers, but in so prime an article of consump- 
tion as meat it is remarkable that so much laxity in fixing the 
relation of wholesale to retail prices should prevail and should 



356 SELECTED EEADINGS IN ECONOMICS 

have been tolerated for generations. It seems quite a rare thing 
for a butcher to sell his joints at fixed prices even to people 
paying ready money ; and it is, I am told, common to charge 
various prices to customers taking credit, without so much 
regard to the safety of the account as to the disposition of the 
buyer. The variations are widest where the butcher's cus- 
tomers differ most in social status. Where they are mostly 
wealthy charges can be made high enough to include a good 
rate of interest on the account ; but even in such cases there 
are variations arising from the disposition of the customers. 
Where the customers differ much in social status meat of vary- 
ing quality can be sold, but the same kind of variations are 
common throughout. In the poorest markets the fierce and more 
public competition of retailers forces down prices and leaves 
room only for the trifling variation determined by higgling. 

In so common an article as salt, which is not easily perishable 
and of which there is no natural scarcity, one would look for 
something like uniformity in price both actual and relative. 
What variation there is in the wholesale price seems to be the 
result generally of the action of " rings " of wholesale dealers. 
In retail price there is much variation, bars of 17 pounds being 
retailed at prices varying from 3^ d. to 6 d. per bar. Small quan- 
tities are sold at from about i d. to 1 d. per pound. The whole- 
sale price is now 34 s. per ton, or about 5 pounds per penny. 
Salt is but rarely weighed, and one of the tricks of the trade is 
to make bars of about 24 pounds for 28-pound bars to assist 
cutting dealers. 

The influence of advertising upon retail prices is very re- 
markable. The subjective result of advertising is a form of 
insanity to which perhaps we are all more or less liable, and is 
seen as certainly in subscriptions to a memorial of Sacheverell 
in Southwark Cathedral as in the purchase of twopennyworth 
of pills for Is. l^d. 

The master soap makers of London have a trade union and 
meet periodically to determine uniform rise or fall in prices to 
retail dealers. The prices among themselves are not uniform, 
but were determined by competition before the formation of the 



PlllCES 357 

union, the variations being maintained by reputation, disposition 
to give credit, or quality of goods. 

The present price at wliich one of these lirnis is selling best 
yellow soap to retailers is X17 per ton net, which works out at 
7 1 farthings per pound, or within a fraction of 51^ d. per 3-pound 
bar. A few linen drapers and grocers are selling this soap at 
5^ (/. per bar, as a bait to catch customers for other articles bear- 
ing a profit. Leaving these unscrupulous dealers out of con- 
sideration, ordinary retailers are selling at 6 (7., 61^(7., 7 (7., 1\ c?., 
8 d., and 8^^ d., per bar. In small quantities it is sold at 2 c7., 
2^ (7., 3 (7., 31, c?., and 4 (7., per pound. 

Some soap maker, having hit upon the device of cutting up 
the three pounds into single pounds for the convenience of the 
retailer, the practice was followed by others, and large quantities 
were sold at from 2 (7. to 3 (7. per pound bai'. An advertising 
firm met this by putting the smaller pieces into a wrapper, to 
give them the respectability lacking in the naked bar or the 
plebeian pieces. The cover lent itself to the purposes of the 
advertiser ; but the advertiser must, by fair or foul means, get a 
larger profit than tlie fair dealer who does not advertise. If the 
stimulus of monstrous and unscrupulous advertising is only 
made sufficiently exciting, the advertiser can venture to do things 
wliich would excite the envy or peihaps even prick the conscience 
of the ordinary tradesman. If the public persistently demand a 
particular quack medicine or a particular maker's soap, it is im- 
perative on the dealer's part to supply the demand. The wrap- 
pered bars were made up to resemble the ordinary pound bars, but 
weighed only 12 ounces, and were not of course called pound bars. 
The bait took with the public. The dealer was charged a rather 
higher price for 12-ounce bars than he paid for the pound bars 
of other makers, but he had to supply the demand. The 
advertising firm stipulated that the 12-ounce bars were not to 
be sold for less than 2^^ d. each, some compensation being offered 
for the lower profit in the shape of a bonus on the disposal of a 
minimum quantity in a given time. The private purchaser is 
thus charged 3i c?. per pound or 10t7. per three pounds, for 
soap procurable at 30 per cent less by ordinary dealing, but 



358 SELECTED READINGS IIT ECONOMICS 

without the stimulus furnished by the advertiser. Other firms 
followed suit with 12-ounce bars at a lower price, but the adver- 
tiser had the start, and all kinds of mania subside slowly. 

The practice of stipulating with retail dealers that an article 
shall be sold at or above a given price is not uncommon with 
wholesale dealers in the case of commodities commanding a cer- 
tain sale — the effect generally of exorbitant advertising. A 
particular brand of whisky for example is sold to the retailers at 
2 s. 9 d. per bottle, with the covenant that they shall not sell it 
for less than 3 s.Q d. per bottle ; whilst another brand sold whole- 
sale at the same price but with no such agreement is retailed at 
prices varying from 2 s. 10 d. to 3 s. Q d. per bottle. Here the 
dealer's cupidity is made to assist the whisky drinker's insanity. 

The skill of the retailer in hitting the taste of his customers 
will sometimes govern the price at which he can sell his goods. 
In the case of the two stimulants, whisky and tea, they are, as 
sold, mostly blends from different distilleries or of different 
growths. The blending in both cases is now generally done by 
the wholesale dealer, but not always. Here the profit includes 
wages for skill in blending, but the skill may cover a kind of 
fraud. The dealer sometimes finds that a low-priced article of 
peculiar flavor and perhaps of deleterious character is relished by 
a particular set of customers, and that he can charge them a rela- 
tively high price for such an article ; and unless some neighbor 
gets to know his trade secret and undersells him, he will con- 
tinue to benefit by the bad taste and ignorance of his customers. 

Sometimes the introduction of articles of foreign make will 
show excessive variations in their wholesale price until prejudice 
is overcome and similar articles of home manufacture are sup- 
planted. A dealer in china and glass showed me three quotations 
for a German-made ale glass, by different agents of different 
makers, the glasses being very much alike. The price for a glass 
made in England of the same shape and size but of better quality 
— quality, however, not counting for much in the greater part 
of the demand for that particular article — was 30 s. per gross. 
The German quotations were respectively 15 s., 12 s., and 10 s. 
6 d. per gross. 



PRICES 359 

In ironmonger}' there appears to he an astonishing hick of 
uniformity in retail prices. The wholesale prices are governed 
hy an ever-shifting scale of discounts from prices fixed at long 
intervals. The rate of discount appears to be adjusted by the 
wholesale dealer by competition, length of credit given, and risk 
according to his own judgment. The retailer appears to make 
the best of his goods, and is only affected in the sale of articles 
in large demand by competition. As an experiment I sent to 
four shops in the same neighborhood for such articles as screws, 
nuts, nails, and common tools, and found the prices charged 
different in each case. 

The same remarks apply to the retail prices charged by 
chemists. Each chemist is " a law unto himself " as to the 
prices charged for common medicines, and, indeed, for most of 
the drugs which he sells. 

Perhaps there is no article of general consumption in the sale 
of which economic friction is better illustrated than in that of 
coal. On the face of it, one would think that the relation of 
wholesale to retail prices might be constant. As regards land- 
borne house coal there is a working understanding between the 
coal owners and the London merchants that when retail prices 
advance 1 s. per ton, the colliery prices are to go up 6 d. per ton. 
That looks as if every advance of 1 s. per ton would put 6 d. per 
ton extra profit in the pocket of the coal merchant. That would 
not be quite the case under any circumstances, but it might 
come very near to it. The cost of screening increases with every 
advance in price, because of the limited demand for the small 
coal, and its decrease in value with its increase in quantity. A 
small dealer getting the advanced price for all his coal, would, 
however, benefit to the extent of an extra 4 (/. per ton or there- 
abouts w'ith every rise of 1 s. on the retail price. Put such 
instances are of little importance to the general trade or to the 
colliery proprietors. A very large proportion of the trade of 
London is done by merchants whose practice it is to compete for 
contracts for the delivery of coal over long periods at fixed })rices ; 
and with every advance of the colliery price their profits diminish 
on these contracts. What happens therefore is this : the general 



360 SELECTED READINGS IN ECONOMICS 

public buying in comparatively small quantities helps to pay in 
enhanced prices for the smaller profit on the orders of the large 
consumers. It may be thought that the merchant can guard 
himself against loss by making time or quantity contracts with 
colliery owners ; and this of course he does. But the chances 
of weather and excessive demand enter largely into the possibil- 
ities of delivery by land and still more by water, whilst the same 
disposition to make the best of a bargain is present alike with 
coal owners and retailers. When hard pressed, therefore, the 
retailer has, at any price, to meet demand from unusual sources. 

In the case of sea-borne coal, fluctuations in wholesale prices 
are much greater than in land-borne coal, one reason being the 
dependence of the supply upon weather conditions at all times 
of the year, and upon the competition of foreign trade, which 
also affects the rate of freight, — - a form of competition absent, of 
course, in land-borne coal. I have known the wholesale or market 
price of sea-borne coal to vary as much as 2 s. per ton, whilst 
retail prices have remained steady. The retail prices are deter- 
mined by the combined influence of the wholesale prices both of 
land-borne and sea-borne coal, land-borne coal being for retail 
purposes much the larger in quantity and steadier in value ; the 
sea-borne price has much les^ influence upon the general selling 
price, and fluctuations in the sea-borne price may take place even 
to a greater extent than that I have named without materially 
affecting the retail price. 

One of the peculiarities of wholesale prices of sea-borne house 
coal from the northeastern ports of England is, that they are 
still subject to deductions for reasons which were cogent Avhen 
coal was sold by the score of chaldrons, but which have no 
relevancy now ; and still other deductions which were made 
on the first introduction of steam colliers to induce merchants 
to clear the vessels rapidly, but which have no longer any 
such meaning. 

Mr. Lecky, in his " Democracy and Liberty," points out how 
remissions of indirect taxes often stick by the way in the pockets 
of traders. A capital illustration of his remark was afforded by 
the remission of the London coal dues. When these dues were 



PRICES 361 

abolished people naturally looked for an immediate reduction of 
1 s. per ton in the price of coal, but as a rule nothing of the kind 
took place. The dues were taken off at a definite time known 
long beforehand. London is a most important market, but it is 
not the coal owners' only market by any means. Trade was 
brisk all over England and the Continent. To take full advan- 
tage of the remission, merchants in London lowered their stocks, 
but the coal owners felt little or no inconvenience from the tem- 
porary lull in the London demand. They filled up their cus- 
tomers' stores elsewhere at good prices, the general condition of 
trade allowing this to be easily done. Immediately after the 
remission, stocks being low, the London demand became ab- 
normally brisk, and up went the price. It was only coal wait- 
ing to enter the port of London and remainders of contracts 
therefore that were affected by the remission of the duty. Had 
the remission come about at a time of very depressed trade, the 
result would of course have been different. Stocks could not 
have been so easily lowered in London, and other markets would 
not have afforded the same relief to the coal owners. 

A very marked effect upon retail prices has been seen of late 
years to result from the increasing tendency to invest large 
amounts of capital in businesses hitherto left to comparatively 
small dealers. The custom is American in its origin, but it was 
stimulated in England b}- the co()perative movement, — a move- 
ment which has only shown any large amount of success as 
retail or distributing agencies in those cases where the stores 
have been established on a large scale with comparatively wealthy 
and educated men to supply the capital required and direct the 
management in the name of cooperation, but really as joint-stock 
proprietors of American stores. The smaller distributing stores 
meet with much the same fate as small businesses ; for whatever 
advantages tliey may have over tradesmen in starting with an 
assured number of interested customers is more than counter- 
balanced by the extra difficulties of divided and generally less 
competent management. The result to the public has been 
beneficial inasmuch as it has been a lessening of the cost of dis- 
tribution and some better adjustment of the relation of retail to 



362 SELECTED READINGS IN ECONOMICS 

wholesale prices, — a result marked chiefly however in articles 
of luxury. Retail prices of articles in daily demand have, I 
believe, been very little affected. It may be that in the not 
very distant future the word " cooperative " will be dropped, 
or will quite lose its meaning in relation to large distributing 
businesses. 

In conclusion, the relation of wholesale to retail prices is of 
course definite within certain limits. The retailer cannot sell 
below cost price and generally speaking he will not be able to 
obtain much higher prices than are customary in his trade in his 
own neighborhood for any length of time. But the variations of 
retail prices are wider, even in articles of prime necessity, than 
might be at first supposed, and these arise from a variety of 
causes illustrating the influence of social customs and human 
passions in modifying economic acts. The social grade of cus- 
tomers, real or imagined, status of neighborhood, rent, artistic 
display, the art of advertising, ability to judge the disposition of 
customers, effrontery, cunning, fraud, — all enter at times into 
the determination of prices charged. 

The academic contempt for traders is justified by the neces- 
sary effect of the continuous exercise of cunning upon the char- 
acter; but in the pressure of cornpetition, where cunning is 
almost as necessary for self-preservation in the trading man as 
it is in the fox, the quality must be recognized as essential, and 
we should guard ourselves against giving it too great relative 
importance, existing as it often does in the same man along 
with higher qualities exercised in other than the trading rela- 
tionships of life. We must remember, too, that the same quality 
is present in the higher and more important branches of trade. 
The banker's profession is perhaps the highest form of indus- 
trial occupation, but in asking the current rate of interest on 
undoubted security and getting it, because the borrower is 
ignorant of the fact that the same banker is lending where 
pressed by competition at a lower rate, the banker is really 
doing what the butcher and tlie grocer and the coal merchant 
do under similar circumstances. " As a nail sticketh fast be- 
tween the joinings of the stones, so doth sin stick fast between 



PRICES 363 

buying and selling," says Jesus, son of Sirach. It is only a 
(question of degree varying from fair industrial wariness to pal- 
pable fraud. And though a very definite line might be drawn 
between acts allowable and not allowable according to high 
ethical standards, when the rule came to be applied to the actual 
conduct of business it would l)e found that casuistry would 
have to be resorted to to an extent that would make the line of 
no absolute but only of relative value. Tliis is not defending 
the crooked ways of trade, — far from it. But the complexity 
of man's nature and of society must be acknowledged and 
allowed for in any cool judgment of the necessities and expe- 
diencies of industrial action. 

2. Variation in the Prices of Agricultural Products ' 

The course of agricultural prices has varied greatly from 
the middle of the past century down to its close. From 1849 
to 1872 the general course was upward. From 1872 to 1894 
the general course was still more rapidly downward. Since 
1894 there has been a marked recovery not only throughout the 
United States but throughout the greater portion of the world, 
so that the level of prices has reacted very favorably upon the 
progress of production of farm products. 

The table on the following page gives, in tiie first column, the 
crop year, in the second the country's production of corn in bush- 
els, in the third the farm price as reported in December of the year 
named, in the fourth and fifth similar particulars for wheat, 
and in the sixth and seventh the cotton crop, as estimated 
by the Department of Agi'iculture, and the yearl}^ average 
prices of low Middling Uplands in the New York markets. An 
asterisk (*) affixed to the price denotes a change in the same 
direction as in the production, the change in other cases be- 
ing opposite. 

The effects of variation in prices upon movements of capital 
and labor are slow but certain. Whenever one farm product of 
first rank rises higlicr than others, so as to put it on an unusual 

1 From Report of the Industrial Commission (Final Report). XIX, 140-142. 



364 SELECTED READINGS IN ECONOMICS 

Production and Prices of Three Agricultural Staples sirice 1883 
(From the Crop Reporter) 











Indian Cobn 


Wheat 


Cotton 


Crop Year 


Produced in 


Price 


Produced in 


Price 


Produced in 


Average 
Price per 




United States 


per 
Bushel 


United States 


per 
Bushel 


United States 


Pound iu 
New York 




Bushels 


Cents 


Bushels 


Cents 


Bales 


Cents 


1883 . . . . 


1,551,000,000 


4:2 A 


421,000,000 


91.1 


5,701,000 


lOf 


1884 








1,796,000,000 


35.7 


513,000,000 


64.5 


*5,682,000 


lOA 


1885 








1,936,000,000 


32.8 


357,000,000 


77.1 


6,575,000 


9 


1886 








1,665,000,000 


36.6 


457,000,000 


68.7 


6,254,000 


9| 


1887 








1,456,000,000 


44.4 


456,000,000 


*68.1 


*-7,020,000 


qi3 


1888 








1,988,000,000 


34.1 


416,000,000 


92.6 


6,941,000 


10 


1889 








2,113,000,000 


28.3 


491,000,000 


69.8 


*7, 473,000 


lOi^? 


1890 








1,490,000,000 


50.6 


399,000,000 


83.8 


8,653,000 


^ 


1891 








2,060,000,000 


40.6 


612,000,000 


*83.9 


9,035,000 


n 


1892 








1,628,000,000 


*39.4 


516,000,000 


*62.4 


6,700,000 


8 


1893 








1,619,000,000 


*36.5 


396,000,000 


*53.8 


7,493,000 


H 


1894 








1,213,000,000 


45.7 


460,000,000 


49.1 


9,476,000 


6 


1895 








2,151,000,000 


25.3 


467,000,000 


*50.9 


7,161,000 


H 


1896 








2,284,000,000 


21.5 


428,000,000 


72.6 


8,533,000 


7fV 


1897 








1,903,000,000 


26.3 


530,000,000 


*80.8 


10,898,000 


m 


1898 








1,924,000,000 


*28.7 


675,000,000 


58.2 


11,189,000 


5A 


1899 








2,078,000,000 


*30.3 


547,000,000 


58.4 


9,143,000 


H 


1900 








2,105,000,000 


*35.7 


522,000,000 


62.0 


10,383,422 


9 



level of value, the effect is to attract labor and capital in that 
direction for the time being, to the sacrifice of other phases of 
farming. This process goes on slowly, but, in the long run, 
surely. The high prices of meat and corn have given an unu- 
sual prominence to the growing of corn and live stock through- 
out the Central States, and made of that cereal a still more 
fundamental crop. It has also somewhat reduced the primacy 
of wheat growing. This applies especially to what is known as 
the corn-belt territory of the United States. 

Throughout the spring-wheat belt the high price of but- 
ter and the low price of wheat which ' prevailed about 1890 
led to the development of dairying throughout Minnesota 
and Wisconsin, as well as to the growth of such crops as 
potatoes, fruits, and the like, so that these localities have 



PKICES 3Go 

become highly specialized, primarily from the fact that change 
of prices gave very different direction to the whole system 
of farming. 

Variation in prices of farm products changes the purchasing 
power of the whole farming population whose crops are affected 
thereby. As pointed out elsewhere, the cotton crop of 1900- 
1901 increased the income of the South by $131,000,000 over 
the amount received for the crop of 1899-1900. A rural 
section in such a position exerts an influence upon the pros- 
perity of the country in every phase of labor and investment 
outside of its own. The country as a whole has an important 
interest in the maintenance of a fairly high level of agricul- 
tural prices. 

Another effect of variation in prices is seen in the shifting of 
the location of a paiticular agricultural industry from the less 
favored to the more favored districts. The influence of the fall 
of prices of cotton resulted in such relocation of cotton-growing 
territory in two different areas : (1) It drove the cotton grow- 
ing out of the hill country into the lowlands along rivers and 
streams east of the Mississippi ; (2) a still greater change was 
the shifting of the cotton-growing area toward the Southwest, 
until one third of the whole cotton crop came from Texas alone. 
The actual seat of cotton production was forced in the direction 
of the new and unexhausted lands as a result of the necessity 
of producing at a lower cost. In 189G-1897 Texas raised less 
than one fourth of the total cotton crop, the other three fourths 
having been produced in the other Gulf and the Atlantic States. 
In 1900-1901 the crop of Texas was larger than that of either 
of the other sections, being 3,809,000' bales, or 37.6 per cent, 
for Texas alone, including Indian Territory, 2,781,000 bales for 
the other Gulf States, and 8,793,000 bales for the Atlantic 
States, including Georgia, Alabama, and Kentucky, out of a 
total crop' of 10,383,000 bales. 

It is a quite general principle in the variation of prices that 
the change in the price is greater than the change in the sup- 
ply, ^ that is, a reduction of supply of 5 per cent may cause a 
rise of, say, 10 per cent iji price, and, vice versa, an increase 



366 



SELECTED EEADINGS IN ECONOMICS 



in supply of 6 per cent results in a decrease of, say, 10 per 
cent in price.^ 

The causes for variation in the prices of cereals in the United 
States must be sought in the world's supply of breadstuffs from 
year to year, in its relation to the demand. In this connection 
the European crop is the principal factor. A shortage there sends 

1 As early as 1696 an English writer, Gregory King, computed that a defi- 
ciency in the wheat harvest might raise the price of wlieat in the following 
proportions : 

Deficiency Kise of Pkice 

1 tenth 3 tenths 

2 tenths 8 " 

3 " 16 " 

4 " 28 " 

5 ' 45 " 

In the United States it has frequently happened that large crops have had a 
smaller value than small crops. This is shown by the following table : 





Wheat 


Corn 


Calendar Year 


Total — 


Total — 


Vahie 

per 
Bushel 
Dec. 1 


Production 


Farm 
Value 
Dec. 1 


Value 

per 
Bushel 
Dec. 1 


Production 


Farm 
Value 
Dec. 1 


1880 

1881 

1882 

1883 

1884 

1885 

1886 

1887 

1888 

1889 

1890 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898 

1899 

1900 

1901 

1902 

1903 

1904 

1905 . 


Cents 
95.1 

119.2 
88.4 
91.1 
64.5 
77.1 
68.7 
68.1 
92.6 
69.8 
83.8 
83.9 
62.4 
53.8 
49.1 
50.9 
72.6 
80.8 
58.2 
58.4 
61.9 
62.4 
63.0 
69.5 
92.4 
74.8 


498,549,868 
383,280,080 
504,185,470 
421,086,160 
512,765,000 
357,112,000 
457,218,000 
456,329,000 
415,868,000 
490,560,000 
399,262,000 
611 ,780,000 
515,949,000 
396,131,725 
460,267,416 
467,102,947 
427,684,346 
530,149,168 
675,148,705 
547,303,846 
522,229,505 
748,460,218 
670,063,008 
637,821,835 
5.52,390,517 
692,979,489 


Dollars 
474,201,850 
456,880,427 
445,602,125 
383,649,272 
330,862,260 
275,320,390 
314,226,020 
310,612,960 
385,248,030 
342,491,707 
334,773,678 
513,472,711 
322,111,881 
213,171,381 
225,902,025 
237,938,998 
310,602,539 
428,547,121 
392,770,320 
319,545,259 
323,525,177 
467,350,156 
422,224,117 
443,024,826 
510,489,874 
518,372,727 


Cenls 
39.6 
63.6 
48.5 
42.4 
35.7 
32.8 
36.6 
44.4 
34.1 
28.3 
50.6 
40.6 
39.4 
36.5 
45.7 
25.3 
21.5 
26.3 
28.7 
30.3 
35.7 
60.5 
40.3 
42.5 
44.1 


1,717,434,543 
1,194,916,000 
1,617,025,100 
1,551,066,895 
1,795,528,000 
1,936,176,000 
1,665,441,000 
1,456,161,000 
1,987,790,000 
2,112,892,000 
1,489,970,000 
2,060,154,000 
1,628,464,000 
1,619,496,131 
1,212,770,052 
2,151,138,580 
2,283,875,165 
1,902,967,933 
1,924,184,660 
2,078,143,933 
2,105,102,516 
1,522,519,891 
2,523,648,312 
2,244,176,925 
2,467,480,934 


Dollars 
679,714,499 
759,482,170 
783,867,175 
658,051,485 
640,735,500 
635,674,630 
610,311,000 
646,106,770 
677,561,580 
597,918,829 
754,433,451 
836,439,228 
642,146,630 
591,625,627 
554,719,162 
544,985,534 
491,006,967 
501,072,952 
552,023,428 
629,210,110 
751,220,034 
921,555,768 

1,017,017,349 
952,868,801 

1,087,461,440 



Ed. 



PRICES 367 

up the world price ; an abundance depresses it with greater cer- 
tainty than is the case with any other factor in tlie world's cereal 
situation. The demands of the deficit wheat countries are con- 
sequently the chief influence in fixing the price at which the 
American surplus shall be disposed of. That demand varies 
with the European harvests, — that is, according to the size of 
the deficit. 

The size of the surplus influences both the domestic and the 
export prices. 

The necessity of the United States to dispose of its surplus 
in the Eutopean markets without any other outlet has led wheat 
growers of the Northwest to advocate, with much unanimity, the 
importance of finding a larger market in the Orient, so that there 
may be competition with Europe in the demand for our surplus. 

3. The Influence of Speculation upon Prices ' 

The directive influence of speculation is its service to society in 
general, and its risk-bearing function its service to trade as such. 
Since its directive control is exerted through prices, it will be 
well first to examine the influence of speculation on prices, and 
return in another place to the assumption of speculative risks. 

In the first place it is desirable to dispose of a more or less 
prevalent idea that speculative prices are determined "regardless 
of the law of demand and supply." Such an idea is based on a 
complete misconception of the nature of value. The more free 
the competition between buyers and sellers, the more minutely 
is price regulated by demand and supply, and nowhere is com- 
petition more free than on the exchange. It is especially 
strange to hear this charge brought forward as if an infraction 
of the law of supply and demand was cause for criminal indict- 
ment. Even if it were true, that under complete competition 
on the exchanges prices were determined in some other way, 

^ By Henry C. Emery. Reprinted, with the consent of the author and the 
Columbia University Press, from Speculation on the Stock and Produce Ex- 
changes of the United States. In Columbia University Studies in Hi.story, 
Economics, and Public Law, Vol. VII [New York, 189G]. 



368 SELECTED EEADINGS IN ECONOMICS 

it would only remain to modify the statement of the law of 
value, not necessarily to disturb the facts. There are plenty of 
instances outside the exchanges where prices are determined by 
other factors than demand and supply. 

This notion is probably due to what may be called the objec- 
tive idea of value, that is, the idea that value may be determined 
by certain physical facts independently of individual feelings. 
Thus it is supposed that there is a physical supply of any com- 
modity of an ascertainable amount, and at the same time a 
sufficiently definite demand on the part of the consumers of the 
commodity, and that these two factors must determine the 
value of the commodity. ^ It should be necessary only to state 
this proposition to show its error, and yet there are many who 
cannot grasp the idea of a subjective determination of value. 
They cannot see that the total physical supply has nothing to 
do with the value at the moment, but only that part of it 
which is available for the market under prevailing conditions. 
That part of the supply which does affect value varies accord- 
ing to the temporary opinions of the holders as to the market 
prospects for some later time. So, too, the demand for com- 
modities is just as little an objective, definite affair. It is some- 
thing purely subjective, dependent in the same way on the 
opinions of the persons concerned, regarding not only present 
but future conditions.^ 

Prices on the exchanges, however, are (and must be) de- 
termined by the existing demand and supply. But the existing 

1 It would be possible to cite many instances of this feeling in regard to value. 
The reports and speeches of the advocates of "anti-option" legislation in 
Congress are full of it. Even writers of standing are not free from confusion 
on this point. Eschenbach (Zur Borsenreform, p. 33 [Berlin, 1892] ) complains 
that speculative prices are determined, not by Vorrath und Bedarf, but by 
Angebot und Nachfrage. Cohn, " Ueber das Borsenspiel," Schmoller's Jahrbuch, 
XIX, 44, says of this idea : "Diese vermeintlich neue Weisheit kommt darauf 
hinaus, dass sie an die Stelle des denkenden Menschen die todte Sache setzt, an 
die Stelle des Schiitzen das Geschoss." 

2 Compare the trenchant remarks of Professor Cohn, in the article just cited, 
on this idea of value, p. 44 et seq. Cohn points out that the price of potatoes 
or any other commodity in which there is no speculation is equally affected by 
the anticipation of future conditions of demand and supply, so far as these are 
known. Cf. also Bruckner, Der Differenzhandel, p, 52. 



PKICES 369 

demand and supply are both speculative, and depend for 
their strength on the conditions in other markets and on the 
expected conditions of the future. It is in this way that distant 
and future demand and supply affect prices, by affecting the 
speculative demand and supply here and now, and it is only in 
so far as they do determine the speculative market of the 
moment that they have any influence on price. 

The speculative demand and supply are just as real as any 
other, and are expressed in genuine offers to buy and sell 
goods. It may be to buy or sell either present goods or future 
goods, or, in other words, goods either for immediate delivery 
or for future delivery. They are at the same time estimates of 
what the future market is to be. It may be expressed by saying 
that the existing market for future goods is an attempt to 
forecast the future market for (then) existing goods. If a 
distinction is made between utility and value by considering 
the value of a commodity as an estimate of what its utility will 
be, a further distinction may perhaps be made by considering 
the price of a " future " as an estimate of what the value of 
the commodity will be. It is an estimate of an estimate. The 
speculator makes his offers to buy and sell entirely on that 
estimate of future values. To be more specific, he trades at the 
moment in May wheat, or July wheat, or September wheat, 
according to his estimate of spot prices in the following May, 
or July, or September.^ 

Seen in this light, it is entirely natural that men should 
" make " prices according to their opinions, and the charge that 
the exchanges are " price factories " loses all its odium. It 
should always be borne in mind that the service of speculation 
comes in its " price-making power." 

Under these conditions the closest scrutiny of all the factors 
that may influence future prices is of essential importance. 
The success of a speculator depends on the accuracy of his 

1 This must be true in the long run even where the specuhitor expects to 
complete his operation before the month of delivery. If he expects the price of 
a given option to rise or fall veithin a given time, it v?ill ordinarily be because of 
conditions wliich would advance or depress the spot price of that particular 
future month. 



370 SELECTED HEADINGS IN ECONOMICS 

estimates, and it follows that where we find organized specula- 
tion we find the best perfected facilities for securing early and 
accurate information. This is one of the striking merits of the 
speculative system. In any business, knowledge and foresight 
are the chief requisites of success. ^ Nowhere do we find such 
strenuous efforts in this direction as among large speculators. 
It may be said with scarcely an exception that every successful 
operator in the stock or grain market has been distinguished 
by his unusual success in securing accurate information in 
advance of his competitors. The old story of how Rothschild 
watched the battle of Waterloo and reached London in time to 
make large purchases in the funds before the news became 
public, is typical of the successful operator everywhere. It is 
also true that the speculator has often been equally marked by 
his ability to mislead his rivals in regard to what he has 
learned. His real opinion, however, is registered on prices by 
his purchases or sales. In the meantime it should be borne in 
mind that every increase in knowledge of future events is, in so 
far, a gain to the public as well as to the individual. 

Every event of any nature whatsoever is eagerly watched for 
and its effects discounted. Droughts in Kansas or rains in 
Argentina are noted at once in the markets of New York and 
Liverpool. New inventions, new discoveries, changes in freight 
rates, economic legislation, political complications, business 
failures, strikes, riots, storms, in any part of the world, are 
quick to affect prices on both stock and produce exchanges. 

Events are anticipated and exert their influence before they 
arrive. It is often surprising to see how absolutely without 
effect is the final occurrence of an event of importance, provided 
it has been expected. It is all epitomized in the familiar saying 
that " Wall Street discounts everything." 

With this body of keen experts, striving by the use of 
private wires, special agents, and every other means, to discover 
and foresee every event bearing on values, speculation has been 

1 As Professor Hadley well says (Economics, p. 113) : " The success or failure 
of a man engaged in manufacturing, in transportation, or in agriculture, depends 
more upon his skill as a prophet than upon his industry as a producer." 



PRTCES 371 

well defined as the struggle of well-equipped intelligence 
against the rough power of chance. Just in so far as it meets 
and predicts changes of value it is successful for the individual 
and fulfills its function in business life. But its power is 
strictly limited. It may provide a special class to assume the 
risks, but it cannot do away with risks altogether. There are 
physical and social changes which are impossible of prediction 
and must remain so. Speculation tends to reduce these to a 
minimum, and perfect speculation would succeed in predicting 
all future conditions, that is, would destroy its own 7-aison d'etre. 
In the meantime it is the many chances of gain from uncertain 
developments that maintain the speculative class.^ 

It is customary to attribute any price which is unfavorable to 
a particular class to the machinations of speculators. In this 
country speculation is charged with the responsibility for a 
large part of the fall in prices of agricultviral products since 
the complete adoption of speculative methods a quarter of a 
century ago. Its tendency is supposed to be always towards a 
depression of price. Under other circumstances, however, it is 
blamed for always enhancing prices above the " natural " rate.^ 
To the person making either of these claims it is perhaps a 
sufficient answer to oppose the other claim, and probably the 
same person who will insist that speculation reduces the price 
of wheat will be ready on another occasion to applaud the 
critic who asserts that speculation gives a " high fictitious 
value" to "intrinsically worthless" stocks. The one view is a 

1 "Der Sporn des Ungewissen mit der Lockung des Gewinns ist es, welcher 
das Getriebe der Spekulation iin Gauge halt. Und doch eines Ungewissen, 
welches zu iiberwinden Tauseiule von unternehmenden Kopfen sich anstreiigen." 
Cohn,I'eber das Borsenspiel, loc. cit., p. 40. 

2 "It is not so mauy years ago since a large and representative meeting 
of western American farmers passed a resolution against options, on the score 
that they tended to unfairly reduce the price of wheat, and it was just three 
weeks after that meeting that a convention of the National Association of 
American Millers, attended by some five hundred members, was held in Minne- 
apolis, and passed a resolution condemning options, on the ground that they 
unfairly raised the price of wheat." Quoted in BradstreeVs, August 22, 189C, 
p. 542. Cf. also Cohn, " Zur Biirsenreform " in Deutsche liundschau, Novem- 
ber, 1891, p. 211 et seq., reprinted in Beitrage zur deutschen BiJrsenrefonn 
[Leipzig, 1895]. 



372 SELECTED READINGS IN ECONOMICS 

contradiction of the other. If any tendency is inherent in the 
system, it must show itself equally whether the subject of specu- 
lation is stock or produce. The methods on the stock exchange 
and on the produce exchange are not essentially different. Short 
selling is rife on both. 

This question as to the effect of speculation in depressing 
prices, which has been the chief argument of the anti-optionists 
in Congress, has been treated somewhat fully by the writer in 
another place,^ and calls for only a brief summary here. The 
familiar argument is that short selling is a selling of products 
that do not exist, in addition to those that do, and so furnishes 
a corresponding increase of supply, which necessarily depresses 
prices ; and figures representing enormous sales are brought 
forward as statistical proof. These sales, however, are also pur- 
chases, and the question of their amount is of no importance. 
They represent a speculative demand as well as a speculative 
supply, and the real question is whether the speculative forces 
on the short side are stronger than those on the long side of the 
market, and whether the speculative supply or demand is war- 
ranted by actual conditions. It is the fact that they sometimes 
are not, which gives rise to the idea that speculative prices are 
" independent of demand and supply." The question of the 
depressing effects of speculation on prices cannot be decided 
by a comparison of prices before and after the advent of specu- 
lation ; for the causes influencing prices are too many to permit 
of tracing the effects of a single cause easily. That there has 
been a great fall in prices in the past few years no one will 
deny, but there has been cheapening of transportation and 
entirely new competition in the markets of the world, due to, 
the exports of Russia and Argentina. Furthermore, since spec- 
ulation began thirty years ago, there are several periods of 
high prices which may as justly be attributed to it as the low 
prices at other times. A comparison of the degree of depres- 
sion with the amount of future sales shows that increased spec- 
ulation has always accompanied higher prices. That is what 
any one familiar with the market would expect. In this case 

1 "Legislation against Futures," Political Science Quarterly, March, 1895. 



PRICES 373 

the increase in speculation is rather the effect than the cause of 
advancing price ; but the fact is damaging to the argument 
that falling prices are due to speculation. The same facts apply 
in the case of the opposite theory that speculation necessarily 
raises prices. It may raise or lower prices ; but so long as there is 
strong speculation on both sides of the market (and there always 
will be) there is no necessary tendency for it to do either. P\irther- 
more any effect on price in either direction, which is not based on 
actual conditions, is necessarily temporary for the same reason. 

What then is the effect of speculation on prices ? Primarily, 
as has been shown, it acts to concentrate in a single market all 
the factors influencing prices. In this way a single price is 
fixed for the whole world. By means of arbitrage transactions 
former differences of piice in different markets have been lev- 
eled. Of this there can be no doubt. The same should be true 
in regard to differences of time as well as of place. Since a 
great change in either the demand or supply of any commodity 
is less unexpected, it has far less influence on price, when it 
finally arrives, than it would have under a nonspeeulative sys- 
tem. This is both because an excited market due to unexpected 
events always registers extreme prices, and also because the 
anticipation of changes in the market affects the immediate 
price. On the other hand, every slight change in the demand 
or supply of a commodity has more influence than ever before. 
The more perfect the speculative market becomes, the more 
sensitive it is to every change in conditions. An " active " 
stock, for example, changes prices many times in an hour. The 
resultant of these two tendencies of the speculative market 
would seem to be a state of less violent but more frequent fluc- 
tuations of price. This is the ordinary statement in regard to 
the matter. The contrast between the two systems has been 
likened to the difference between the countless waves of the 
sea in fair weather and its billows in a storm. 

Perhaps the most potent influence in preventing wide fluctu- 
ations is the much maligned short seller. It is he who keeps 
prices down by his short sales, and then keeps them strong by 
his covering purchases. This is especially true in the case of 



374 SELECTED READINGS IN ECONOMICS 

inflation followed by panic. If it were not for strong short 
selling when the market becomes inflated, prices might rise to 
almost any extent before the final crash. Now the rise tends to 
be checked by the efforts of shrewd operators to take advantage 
of the inflation. On the other hand, when prices begin to tum- 
ble, they are kept from going as low as they otherwise would 
by the purchases which the shorts have to make to cover their 
contracts. Thus prices at both ends of a panic are less extreme 
than they would be without short selling. Under organized 
speculation both the sanguine and the skeptical elements are 
duly represented. Every decided rise or fall in values is fought 
by one party or the other. Compare the situation during a real 
estate boom. Here only the sanguine affect the price on the rise, 
and only the gloomy on the fall. At one end prices are more 
recklessly inflated, and at the other more needlessly depressed, 
than would be possible in an organized speculative market. 

These are strong factors making for a condition of more 
steady prices. Against them must in fairness be set the possi- 
bility of increased fluctuation by reason of speculation. While 
the participation of speculators in the market increases the 
chances of an intelligent forecast of coming events, it also 
affords the opportunity for panic influence. The ease with 
which business is done, and especially the facility for trading 
on insufficient capital, occasionally precipitate movements in 
price which are due solely to the unreasoning excitement of 
a crowd. There are also occasional movements of a different 
kind, due to well planned and executed " manipulation." Most 
striking of these is the successful corner. So, too, any tem- 
porary difficulty of either the bulls or the bears, due per- 
haps to the necessity of immediate delivery, or perhaps to a 
concentration of orders in the market of one particular kind, 
may create a sudden fluctuation one way or the other.^ 

1 For example, on March 6, 1894, the price of the Sugar Trust certificates 
advanced twelve points in less than an hour, and almost at once reacted ten 
points. Such fluctuations have no relation to actual conditions. Probably the 
flurry was due to a concentration of buying orders, increased by "stop loss 
orders " as the price rose, with no selling orders for the moment. This at least 
was the interpretation of the press. 



IMUCES 



'J i ') 



It is of the greatest importance, however, to distinguish the 
frequency of fluctuation from its extent. It is the whole tend- 
ency of speculation to cause a ceaseless fluctuation within cer- 
tain limits, but it is no less a tendency of speculation to narrow 
those limits. Those cases which result in extreme prices of a 
fictitious kind are rare and in any case of short duration. 

Statistics regarding the influence of speculation on prices 
must be regarded with due caution. We may compare tlie 
prices of some commodity during a speculative and a nonspecu- 
lative period, or we may compare the course to-day of prices of 
a speculative and nonspeculative commodity or security. In 
the first case it is never quite possible to tell what other changes 
besides the introduction of speculation may have been of influ- 
ence ; in the second case it is difiicult to weigh the various 
influences, other than the presence or absence of speculation, 
which affect the prices of the two commodities. For example, 
it is sometimes said that wheat fluctuates in value more than 
many nonspeculative commodities ; but this is not because of 
speculation, but because of the inherent uncertainty of its sup- 
ply. On the other hand, corn, in the long run, fluctuates more 
than wheat, but this is not due to the smaller degree of specu- 
lation in the case of corn. It is gro^n in fewer countries than 
wheat, and is not in such steady demand for human food.^ The 
stocks which are chiefly speculated in are often most irregular 
in their price movements, but it is the natural fluctuation in 
value which induces the speculation, not the speculation which 
causes the fluctuation. 

For these reasons statistics can hardly be used to furnish 
either proof or disproof of the foregoing estimate of the effect 
of speculation. Any general opinion on the subject must rest 
rather upon its own reasonableness than upon statistical verifi- 
cation. With the necessity of caution in interpretation duly 
recognized, it is possible to make some statistical comparisons 
which, if not of complete significance, are at least of interest. A 
comparison not infrequently made is that of the wide fluctuation 

1 The fluctuations of corn and wheat prices for a series of years are given 
each year by the secretary of tlie Chicago Board of Trade in his annual report. 



376 



SELECTED HEADINGS IN ECONOMICS 



in the price of grain in the Middle Ages with similar fluctua- 
tions to-day. For example, wheat in London sold in 1335 
at 10 s. per bushel, and in 1336 at 10 d.^ Such figures, how- 
ever, throw little light on the subject in hand. More interesting 
is a comparison between periods in this country. Speculation 
in cotton began about 1870. Following are the highest and 
lowest prices of cotton per pound in New York for the decades 
1821-1830, 1851-1860, and 1885-1894, with the percentage of 
fluctuation from the highest price. ^ The grade quoted is the 
same throughout each decade, and a change of grade between 
the decades does not affect the comparison of fluctuations. 



Year 


Low Hi 


GH 


Pee 

Cent 


Year 


Low 


High 


Per 

Cent 


Year 


Low 


High 


Pee 

Cent 


1821 


$0.11 $0 


20 


45. 


1851 


.f0.08| 


f0.15 


41.7 


1885 


$0.09/;, 


$0.10i'. 


9.3 


1822 


.10 


18 


44.4 


1852 


.08i 


.llf 


25.3 


1886 


.09J 


.10 


8.8 


1823 


.09 


17 


47.0 


1853 


.091 


•lis 


17.0 


1887 


.09^ 


.llg 


19.8 


,■ 1824 


.11^ 


18 


36.1 


1854 


.10 


•Hi 


14.9 


1888 


.09^ 


.11 


13.6 


1825 


.12 


30 


60.0 


1855 


.08J 


.13 


34.6 


1889 


m\h 


.11* 


15.7 


1826 


.09 


17^ 


48.6 


1856 


.09 


•111 


22.6 


1890 


.lOi 


■ 12| 


18.8 


1827 


.08J 


iH 


23.9 


1857 


.111 


.15 J 


26.1 


1891 


.07 1 1 


.108 


25.3 


1828 


.081 


13 


36.5 


1858 


.081 


.15i 


43.6 


1892 


.06^^ 


.OSJ 


29.3 


1829 


.08 


Hi 


30.4 


1859 


.11 


.131 


17.7 


1893 


.07A 


.10 


28.1 


1830 


.08 


12i 


36.0 


1860 


.10^ 


•111 


10.6 


1894 


■06| 


.08ft 


19.6 



The above figures show constantly diminishing fluctuations. 
The average per cent of fluctuation for the three periods is, for 
1821-1830, 40.79 per cent; for 1851-1860, 25.41 per cent; 
for 1885-1894, 18.83 per cent. The extreme fluctuations for 
any one year in the three decades were respectively 48.6 per 
cent, 43.6 per cent, and 29.3 per cent. The average annual 
fluctuation was lessened more between the first and second 
periods taken (37.7 per cent) than between the second and 
third (25.9 per cent). That is, while the speculative period 

1 Marshall, Principles of Economics, p. 165. 

2 These figures (with the exception of the percentages, which are separately 
calculated) are taken from "Production and Prices of Cotton for 100 Years," 
United States Department of Agriculture, 1895, Miscellaneous Bulletin, No. 9. 

The decade 1821-1830 is the first for which highest and lowest quotations 
are given. 



PRICES 



377 



(1885-1894) shows narrower fluctuations than the period 1851- 
1860, there was even greater improvement between this period 
and the decade 1821-1830. 

F'or grain such accurate statistics for early periods are not 
avaihible. A comparison, however, may be made of the annual 
fluctuations since the adoption of the " future " system (say 
18G5). Following are the highest and lowest prices of wheat 
at Chicago for thirty-one years, with per cent of fluctuation 
from the highest price : ^ 



Year 


Low 


High 


Per Cent 


Year 


low 


High 


Per Cent 


1865 


$0.85 


§1.56 


45.1 


1881 


$0,953 


§1.43^ 


33.4 


1866 


.78 


2.03 


61.6 


1882 


.911 


1.40 


34.9 


1867 


1.55 


2.85 


45.6 


1883 


.90 


1.13i 


20.7 


1868 


1.041 


2.20 


52.5 


1884 


.69 


.96 


28.1 


1869 


.76i 


2.47 


60.0 


1885 


.731 


.91:1 


20.0 


1870 


.731 


1.31?, 


44.7 


1886 


.691 


.843 


18.3 


1871 


.991 


1.32 


24.6 


1887 


.G6t 


.94J 


29.7 


1872 


1.01 


1.61 


37.3 


1888 


.711 


2.00 


64.4 


1873 


.89 


1.46 


39.0 


1889 


.75.V 


1.083 


30.6 


1874 


.8U 


1.28 


36.3 


1890 


.741 


1.081 


31.4 


1876 


.831 


1.301 


36.2 


1891 


.843 


1.16 


26.9 


1876 


.83 


1.26| 


34.5 


1892 


.69J 


.913- 


24.5 


1877 


l.OU 


1.76i 


42.5 


1893 


.54^ 


.85 


39.7 


1878 


.77 


1.14 


32.6 


1894 


.503 


.63f 


21.0 


1879 


.811 


1.331^ 


36.2 


1895 


.48i 


.8U 


40.0 


1880 


.86.V 


1.32 


35.2 











Dividing the whole time into two periods of sixteen and fifteen 
years respectively, as in the table, it appears at once that the 
fluctuation was decidedly less in the second period. From 1865 
to 1880 the annual fluctuation was less than 35 per cent in only 
three cases, while from 1881 to 1895 the annual fluctuation was 
less than 35 per cent in all but three years. In the first period 
the fluctuation was less than 30 per cent in one year only ; in 
the second period it was less than 30 per cent in eight years. 

Nevertheless the fluctuations under a speculative system are 
still large. Wide fluctuations from year to year are inevitable, 

1 Figures from the Report 0/ the Chicago Board of Trade, 1895, p. xxxvi. 



37 



SELECTED READINGS IN ECONOMICS 



whether speculation prevails or not, because crops vary greatly, 
and in the end this variation of supply must have its effect. 
Within the limits of a single year, however, speculation should 
show a leveling influence. Figures of the highest and lowest 
prices in each year may fail to show the general tendency of 
speculation in this direction because of the temporary extreme 
quotations which arise from abnormal speculation. In the above 
table it will be seen that the fluctuation in 1888 was 64.4 per 
cent, the price rising to $2.00 per bushel. This was due to the 
corner at the end of September of that year. Similar occur- 
rences on a smaller scale account for the degree of fluctuation in 
some other years. Such price movements are of short duration, 
and their presence in a price table may give a false appearance 
of similarity between the fluctuations of earlier and of recent 
years. A fairer method perhaps would be that of monthly 
averages. Professor Bemis has made some tables of interest in 
this connection,^ one of which he summarizes as follows : 

Monthly Average per Bushel No. 2 Spring Wheat., 
at Chicago, 1885-1892 



September . 


. 83.9 cts. 


January . . 


. 82.8 cts. 


May . . 


. 89.2 cts. 


October . . 


. 87.6 " 


February . 


. 83. 4 " 


June . . 


. 86.6 " 


November . 


. 88.2 " 


March . . 


. 82.7 " 


July . . 


. 82.7 " 


December . 


. 85.4 " 


April . . . 


. 84.5 " 


August . 


. 83.8 " 



" The figures tell their own story. They not only show that 
there is no fall in prices at harvest, when we should most expect 
it, but they reveal a remarkable evenness of prices between all 
the months over a series of years." 

The following table is a comparison of average monthly 
prices of winter wheat in New York ^ for four years before and 
four years after the advent of speculation. 

1 See "The Discontent of the Farmer," Journal of Political Economy, 
March, 1893. 

2 For the earlier period figures are taken from the reports of the. New York 
Chamber of Commerce, 1857-1859, and for the later period from the annual 
reports of the Produce Exchange. 



PRICES 



379 





1855- 
1856 


1856- 
1857 


1867- 1858- 
1858 1859 




1890 


1891 


1892 


1893 


July . . 


S2.074 


§1.55 


§1.75 


§1.04 


January . 


§0.86 J- 


§1.05} 


§1.02| 


§0.79^ 


August . 


1.80 


1.57 


1.55 


1.15} 


February . 


.85| 


i.iOH 


1.041 


•79fV 


September 


1.85 


1.55 


1.40 


1.18 


March . . 


.87J 


l.lSf 


1.01 


.75J 


October . 


1.93 


1.56 


1.17 


1.11.1 


April . . 


.93^\ 


1.19 i^g 


.981 


■76| 


November 


2.08 


1.55 


1.19 


1.18 


May . . 


.98| 


1.13J 


.961 


•77 1 


December 


2.05 


1.57 


1.17 


1.18J 


June . . 


.94^ 


1.07 J 2 


•91 H 


•72tV 


January . 


1.95 


1.57 


1.12 


1.251 


July . . 


.93j\ 


.99t 


.86-r*, 


•71^ 


February . 


1.83 


1.55 


1.17 


1.36.1 


August . 


1.04 


1.05J 


.82} 


.68 


March . . 


1.70 


1.48 


1.15 


1.48 


September 


l.Olif 


1.03-^5, 


.78| 


.72} 


April . . 


1.64 


1.45 


1.17 


1.43J 


October . 


1.001 


1.04} 


.77|f 


.69} 


May . . 


l.GO 


1.65 


1.04 


1.65 


November 


1.02 1 


1.05ji 


.75^ 


.66^. 


June . . 


1.45 


1.70 


1.02 


1.55] 


December 


1.04 jL 


1 -05x^2 


.76^ 


.67} 



An examination of these tables shows the marked differences 
in the amount of annual fluctuations in earlier years ; but reveals 
in the main a smaller amount of fluctuation in the second period. 
For eight months in 1 850-1857, a very unusual year, the average 
monthly price varied only from $1.55 to 81.57, and then from 
April to June changed from -91.45 to $)1.70. The range in 
average monthly prices for each year, measured in per cent of 
the highest price, was : 



1855-1856 . . 


. . . 30.0 per cent 


1856-1857 . . 


. . . 14.7 


1857-18.38 . . 


. . . 41.7 


18.58-1859 . . 


. . . .37.0 



1890 19.6 per cent 

1891 16.3 

1892 27.4 " 

1893 15.7 



The widest margins between any two successive months were 



1855-1856 13.2 per cent (July- August) 



1856-1857 12.1 

1857-1858 16.4 

1858-1859 12.9 

1890 10.4 

1891 7.36 

1892 6.13 

1893 6.86 



(April-May) 

(September-October) 

(April-May) 

(July-August) 

(June-July) 

(.Iune-.Iuly) 

(May-June) 



380 SELECTED EEADINGS IN ECONOMICS 

The foregoing figures of price variations cannot, however, be 
accepted as an entirely accurate indication of the influence of 
speculation. In the first place, they are summarized in the rough 
form of averages, and do not pretend to be more than fragmentary. 
Incomplete as they are in this respect, however, they do show a 
pretty uniform tendency toward a lessening of price fluctuations. 
In the second place, it is impossible to attribute a change of this 
nature unmistakably to speculation. The course of the price 
movements of to-day is a joint result of a joint development. 
The increased facilities of transportation and communication, 
the improvements in trade methods, and the speculative system 
have all developed together. The result of all these forces work- 
ing in concert is toward smaller variations in prices, but how 
much of the result can be attributed to any one cause it is per- 
haps fruitless to discuss. 

Some statistics of fluctuation were given in the report of the 
German Commission of 1893, which have been cited by Professor 
Cohn as of significance in regard to this question. In the matter 
of produce, however, comparisons were not made. In the case 
of securities, two speculative and three nonspeculative stocks 
were taken for comparison, and the securities in which specula- 
tion did not occur showed greater ups and downs of price than 
even the extreme speculative stock [Spielpapier) taken for com- 
parison. Such a comparison, however, is of doubtful value even 
if made by one who is perfectly familiar with the conditions 
affecting the value of each stock. It would be impracticable to 
attempt any such contrast in this place. Accurate figures of the 
real value of unlisted securities in the United States from time 
to time would require the most' careful inquiry as to actual sales. 
Even then the complex conditions affecting the value of each 
security would make the results worthless as an indication of the 
effect of speculation on prices. 

Strong evidence of smaller fluctuations under the speculative 
system is found in the smaller margin of profits of traders, and 
still more in the existing method of quotation. Before the war, 
cotton was quoted only within a quarter or possibly an eighth of 
a cent per pound. To-day cotton quotations are in hundredths 



PIUCES 381 

of a cent. AVheat, formerly quoted in quarters of a cent per 
bushel, is now quoted in sixteenths. This is clearly seen from 
a glance at the table of average monthly prices given above. 

There is one important change in price phenomena which may 
be traced directly to speculation as such, because no other cause 
could be equally influential in this direction. This change is not 
the greater stability of prices, but the greater graduation in price 
fluctuations. Even if it were to be admitted (for the sake of 
argument) that prices in the long run show as wide fluctuations 
as formerly, it is important to notice whether or not these ex- 
treme points are registered suddenly or by steady gradations. It 
needs little more than the mere statement to show the advantage 
of a speculative system in this matter. There are always some 
shorts ready to buy in as prices first fall, and some bulls ready 
to sell out as prices first rise, and these forces are very effective 
in graduating prices. So perfectly does the system work that a 
sudden change in price, of any importance, is very rare. The 
fact is so apparent from a glance at the daily market news as 
to render statistical illustration unnecessary.^ This is almost 
entirely the work of speculation. 

The practical benefit of this effect of speculation is great. 
One of the chief advantages of speculation to the public is the 
early warning of the change in values. The course of the prices 
that each day registers is of importance to investors all over the 
country who have no desire to speculate, and the losses which 
the great mass of investors are able to avoid by unloading their 
stock on a gradually falling market are incalculable. Consider 
the case of a single security, such as Atchison stock. A large 
amount of that stock found its way into the hands of small in- 
vestors in New England at comparatively high prices. Without 
speculation the fall in the value of the securities would have 
been sudden, coming only with the Atchison bankruptcy. As 

1 No better illustration of this influence on a large scale can be given than 
the fall of prices on the New York Stock Exchange in 180.3. Taking twenty 
representative securities, the fall in prices averaged forty-five points, more 
than fifty per cent, between January and July, but the real force of the panic 
was disguised by the gradual decline through the five months. See BradstreeV s, 
July 29, 189.S. 



382 SELECTED READINGS IN ECONOMICS 

it was, the market opinion of the value of that stock was regis- 
tered from day to day, and a chance given the holder to unload 
at each new quotation. 

There is a similar practical value to merchants, planters, 
manufacturers, and others, in the graduated price movements of 
speculative commodities. 

Another question of interest in regard to the effects of specu- 
lation on prices is that of the relation between spot prices and 
prices of futures. In the main, the price of spot goods and the 
price of future goods are determined by the same factors, viz. the 
aggregate of the present and anticipated future conditions of 
the market. It is not true that spot prices are determined by 
immediate conditions and futures by anticipated conditions. 
The amount offered and bid for at any particular time, which 
fixes the spot price, itself depends upon the anticipations of the 
filture. Hence the prices for cash and future goods will generally 
vary together. When the option runs forward to the time of in- 
coming receipts from the new crops, the price for that delivery 
tends to stand below the price for deliveries when the supply is 
small. Except for this influence of the new supply, futures 
normally stand higher than spot prices by the cost of storage, 
including interest, insurance, etc., that is, prices for different 
times are much the same, just as for different places, varying 
with the cost of storage in the one case and of transportation in 
the other.i But sometimes causes act upon one price alone and 
make that change independently.^ This may be the case under 

1 For example, in Chicago tiie May option normally rules liigli and stands 
well above cash wheat early in the year. In July the receipts begin to increase, 
and that option is often below the price of May wheat. The price of September 
wheat is relatively low during the summer, but by the time trading in the Decem- 
ber option has begun prices of futures again rule high, in some measure accord- 
ing to the distance of the option. 

2 Even the modified statement in the text is only roughly true. It is not un- 
commonly stated that in the last few years futures in the wheat market have not, 
in the long run, stood enough above spots to cover all the expenses of carrying. 
Some suggested reasons for this are : cut charges for storage ; the failure of out- 
side speculation to maintain the market against hedging sales ; the fact that the 
great elevators will buy wheat and carry it for what they can get, and perform 
the functions of both carrier and trader for the commission of one. In any case, 
the tendency is strongly to bring all prices together. 



PRICES 383 

certain speculative conditions. For example, if a large number 
of shorts have delayed covering until the close of the month for 
delivery, their efforts to cover will send the spot price well above 
the prices for later deliveries. Their need is an immediate one. 
A sharp covering movement before the month of delivery may 
have a similar effect. 

More important than speculative conditions in this regard is 
the trade situation at certain times of the year. When, for ex- 
ample, mills need the wheat for grinding, and elevators have 
unused capacity on which they want to earn storage, they will 
bid up wheat for immediate deliveiy, because they cannot afford 
to postpone receiving it. Thus, in Minneapolis, for example, in 
the early spring the immediate demands of the millers and the 
elevators, together with the fact that the future needs will be 
met by the new crops, sometimes put the price of cash wheat 
above the price of the July or even of the May option. Various 
other particular causes of this kind may affect either the grain 
or cotton markets, and cause considerable variation in the rela- 
tion between spot and future prices. 

Reference has been made thus far only to the effect of time 
speculation on prices. As already shown, time dealings were 
preceded by a form of speculative trade which aimed to secure 
a profit from the differences in price in different places. Such 
business is to-day known as " arbitrage." To buy where goods 
were cheap, and to sell where goods were dear, was of course an 
essential part of the trader's business. This place speculation, 
however, was not separable from ordinal y trade under the earlier 
conditions of imperfect and uncertain means of communication. 

Modern arbitrage business is a far different thing from this 
earlier form of trade. The great point of difference is that the 
prices in both the selling and the buying markets are known at 
the same moment. Consequently prices in different localties can 
vary but little before being at once equalized by purchases in the 
lower, and sales in the higher, market. This equalization is more 
difficult in grain or cotton than in stocks, since to really alter the 
price may involve all the trouljle of making actual sliipments. 



384 SELECTED READINGS IN ECONOMICS 

In the case of securities the cost of transportation is so small that 
there is to-day but one price for any active stock in all markets. 

Arbitrage between international markets, as, for example, be- 
tween London and New York, is very closely connected with the 
whole business of foreign exchange. Securities are a familiar 
means of making international payments, and a foreign exchange 
house must know at every moment whether the greatest profit 
comes from the remission of gold, or bills, or securities.^ The 
moment a security in London, for example, is higher than in 
New York by a sufficient amount, an exchange dealer who 
wishes to remit may sell that security in London, buying at the 
same time here, and using the debt of the London purchaser to 
settle the account for which he desires t.o remit. International 
arbitrage dealings may be carried on by any one, but in New 
York the business is chiefly in the hands of a few houses, since 
the greatest profit in it comes from its use in connection with 
foreign exchange, a subject beyond the limits of the present dis- 
cussion. The ordinary speculator does not figure in this field. 

The extremely narrow differences in price which prevail be- 
tween different markets well illustrate the suggestion made above, 
that perfect speculation destroys itself. Arbitrage business can 
probably never greatly increase (except as international payments 
increase), and can never be more than an adjunct to the great 
mass of time dealings. It has found its limits in its success. 
Indeed arbitrage, at least in the case of securities, is not specu- 
lation at all. If both prices are actually known at the same 
moment, to buy at one price and sell at another is not to take a 
risk, and so is not speculation. It is trade. Transatlantic 
arbitrage has scarcely reached this point as yet, and in any case 
the nice questions of exchange make the calculation of profits 
uncertain except to the expert. But the old form of arbitrage 
dealings between the New York Stock Exchange and the stock 
exchanges of Boston and Philadelphia was a perfect^ case of 
nonspeculative trading of a quick kind. Private wires between 

1 Ehrenberg says such dealings began among the bankers of Genoa and Flor- 
ence in the fourteenth century. See Handworterbuch der Staatswissenschaften, 
article , " Arbi tr age . ' ' 



PKICES 385 

the cities, telephones in the exchanges, and operators quick to 
translate and transmit the signals of the brokers on the floor, 
constituted an effective machinery for operations of a very in- 
teresting kind. By means of these devices the same man was 
practically trading in Boston and in New York at the same 
time. A change in price in either place was known by the 
broker on the floor of the other within less than thirty seconds. 
This was trade reduced to its finest point. It is not necessary 
to point out how completely such dealings bring about a uni- 
formity of price. The New York Stock Exchange in 1894, how- 
ever, put an end to such dealings by requiring communications 
from the floor to the telephone to be sent by a messenger. This 
made the two markets no longer identical, because of the longer 
time for communication. This action was taken solely for the 
practical purpose of bringing the business of other centers to the 
New York market, and to maintain commission rates more strictly. 
It was a backwarcf step from the economic point of view, and, 
on the practical side as well, the opinion is not uncommon that 
it diminished rather than increased business. 

Practices of a very similar kind occur in the case of produce. 
The simplest transaction is that of buying grain in the market 
where it is low, selling it at the same time for forward delivery in 
a high market, and then making a shipment to fulfill the contract. 

The theory of uniform prices by means of arbitrage dealings 
is, however, never completely illustrated in practice. Even in 
the case of those commodities in which speculation is most 
common, small divergences are sometimes surprisingly constant. 
The complaint is heard in New York that the Chicago market 
is " out of line " for considerable periods of time. The same 
complaint is made in western markets. In theory we should 
expect this to be corrected by an increased shipment to Chicago, 
the higher market, and a consequent fall in price there. But it 
is said that such results do not follow, that in fact the differ- 
ence between New York and Chicago may continue for some 
time to be less than the cost of transportati(m. At such times 
to buy grain in Chicago, sell ahead in New York, and make 
shij)ment accordingly, is to incur loss. This divergence must 



386 SELECTED EEADINGS IN ECONOMICS 

be due to some - kind of economic friction which keeps goods 
from accumulating at that particular center in sufficient quan- 
tity to reduce the price. Furthermore the conditions may not 
always be as they seem. When it is said that Chicago is " out 
of line with the seaboard," it may be that the statement is true 
as based on nominal freight rates, but that cut rates to some 
particular ports make shipment profitable. In any case, the 
amount of comment and complaint which is brought out by a 
market's being slightly out of line, and the fact that the condition 
is so widely recognized are striking evidence of the tendency 
shown by speculative markets to come to uniform prices. If the 
rule were not very general in its application, the occasional excep- 
tion would not cause so much comment. Goods follow prices, 
says Kohn, by a kind of economic gravitation. But the economic 
gravitation does not mean that goods always go to the highest 
market, any more than physical gravitation means that bodies 
always fall to the ground. In both cases there may be resisting 
forces. In both cases the law states only a tendency. 

The failure of arbitrage transactions to control extreme prices 
at critical times is due to the fact that transportation is still 
far from instantaneous. Sales can be made by telegraph, but 
the contract can be met only by shipment. In consequence the 
price of some article occasionally reaches an abnormal point in 
a single market without much effect being felt in other markets. 
If, for example, there is a short interest in May wheat still out 
at the very end of the month, the contracts must be covered 
before the last day, and a squeeze may put the price up to a 
point limited only by speculative conditions. In this case arbi- 
trage transactions between exchanges are impossible, because 
no one dares to sell short, and because shipment cannot be made 
from other points in time to meet the May delivery. The high 
price is entirely abnormal, and has no relation to the supply of 
the wheat outside of the single market and the immediate move- 
ment. The morning of the 1st of June the price drops back, 
and after the usual convulsion of reaction the normal course is 
resumed. In the famous Chicago corner at the end of September, 
1888, while the price in Chicago rose more than a dollar in a 
few days, in New York the rise was only a, few cents. 



CHAPTER XIV 

THE XATURAL HISTOKY OF MONEY 

1. The Inconvenience of Barter 

II 

To obtain boats to proceed on my Tanganyika cruise was 
my first consideration ; but the owners of two promised me by 
Said ibn Salim at Unyanyembe were away, and therefore I 
could not procure them, I discovered a good one, however, 
belonging to Syde ibn Habib — who had met Livingstone both 
in Sekeletu's country and in Manyuema — and managed to 
hire it from his agent, though at an extortionate rate. 

The arrangement at the hiring was rather amusing. Syde's 
agent wished to be paid in ivory, of which I had none ; but I 
found that Mohammed ibn Salib had ivory, and wanted cloth. 
Still, as I had no cloth, this did not assist me greatly until 
I heard that ^Mohammed ibn Gharib had cloth, and wanted 
wire. This I fortunately possessed. So I gave Mohammed ibn 
Gharib the requisite amount in wire, upon which he handed 
over cloth to Mohammed ibn Salib, who, in his turn, gave Syde 
ibn Habib's agent the wished- for ivory. Then he allowed me 
to have the boat. 

112 

A Dyak has no conception of the use of a circulating medium. 
He may be seen wandering in the bazaar with a ball of beeswax 
in his hand for days together, because he can't find anybody 
willing to take it for the exact article he requires. This article 
may not be more than a tenth the value of the beeswax, but he 

1 v. L. Cameron, Across Africa, pp. 17(5-177. 

2 Brooke, Ten Years in Sarawak, I, 150. 

387 



I 



388 SELECTED EEADINGS IN ECONOMICS 

would not sell it for money, and then buy what he wants. 
From the first he had the particular article in his mind's eye, 
and worked for the identical ball of beeswax with which, and 
nothing else, to purchase it. 

2. Furs as Money ^ 

According to Russian annals the most highly prized furs 
were those of the squirrel, ermine, marten, beaver, and sable. 
These were the most important articles of export ; all nations 
were eager to get them ; the Khosars, Varaigues, and later the 
Mongols levied in furs the tribute they imposed on the Slavs 
and Russians when the latter were obliged to purchase peace ; 
a part of the ordinary taxes must be paid in furs ; fines were 
fixed in this sort of currency ; and finally the prices of other 
commodities were often quoted in furs. 

3. Cattle as Money ^ 

In the Homeric poems, which cannot be dated later than the 
eighth century B.C., there is as yet no trace of coined money. 
We find nevertheless in those poems two units of value ; the 
one is the cow (or ox), or the value of a cow, the other is the 
talent {rdXavrov). The former is the one which has prevailed, 
and does still prevail, in barbaric communities, such as the 
Zulus of South Africa, where the sole or principal wealth con- 
sists in herds and flocks. For several reasons we may assign to 
it priority in age as compared with the talent. In the first 
place it represents the most primitive form of exchange, the 
barter of one article of value for another, before the employ- 
ment of the precious metals as a medium of currency : con- 
sequently the estimation of values by the cow is older than that 
by means of a talent or " weight " of gold, or silver, or coppier. • 
Again, in Homer, all values are expressed in so many oxen, as 

1 Storch, Cours d'^conomie politique, IV, 39. 

2 William Eidgeway, The Origin of Metallic Currency and "Weight Standards, 
pp. 2-4. 



THE NATUliAL HISTOKV OF MONEY 389 

"golden arnus for brazen, those worth one hundred beeves for 
those worth nine beeves " (II. VI, 236). 

The talent, on the other hand, is only mentioned in Homer in 
relation to gold (for we never find any mention of a talent of 
silver) and we never find the value of any other article expressed 
in talents. But the names of monetary units hold their ground 
long after they themselves have ceased to be in actual use, as 
we observe in such common expressions as " bet a guinea," or 
worth a " groat," although these coins themselves are no longer 
in circulation, and so the French sou has survived for a century 
in popular parlance, and the thaler has lived into the new 
German monetary s)'Stem. Accordingly we may infer that the 
method of expressing the value of commodities in kine, which 
we find side by side with the talent, is the elder of the twain. 

Was there any immediate connection between the two systems, 
or were they, as Hultsch("Metrologie," p. 165) maintains, entirely 
independent? It is diificult to conceive any people, however 
primitive, employing two standards at the same time, which are 
completely independent of each other. For instance, when we 
find in the Iliad that in a list of three prizes appointed for the 
foot race, the second is a cow, the third is a half-talent of gold, 
it is impossible to believe that Achilles, or rather the poet, had 
not some clear idea concerning the relative value of an ox and a 
talent. Now it is noteworthy that, as already remarked, nowhere 
in the poems is the value of any commodity expressed in talents ; 
yet who can doubt that talents of gold passed freely as media 
of exchange ? A simple solution of this difficulty would be that 
the talent of gold represented the older ox unit. This would 
account for the fact that all values are expressed in oxen, and 
not in talents, the older name prevailing in a fashion resembling 
the usage of pecunia in Latin. 

A complete parallel for such a practice can be still found at 
the present moment among some of the Samoyede tribes of 
Siberia. Thus we read in the account of a recent traveler : 
" He finally came to the conclusion that for the consideration of 
five hundred reindeer he would undertake the contract. This I 
regarded as a very facetious sally on his part. The reindeer, 



390 SELECTED READINGS IN ECONOMICS 

however, I found was the recognized unit of value, as amongst 
some tribes of the Ostiaks the Siberian squirreL For this 
purpose the reindeer is generally considered to be worth five 
roubles." ^ Again, forty years ago, Haxthausen ^ tells us that the 
Ossetes, a Caucasian tribe dwelling not very far from Tiflis, 
although long accustomed to stamped money, especially on the 
border of Georgia, kept their accounts in cows, five roubles being 
reckoned to the cow. Here then in Siberia and in the Caucasus, 
in spite of a long experience not merely of a metallic unit but 
of 'actual coined money, we still find values estimated in rein- 
deer and in cows, the older units, just as in Homer they are 
stated in oxen. 

We shall likewise find that when the ancient Irish borrowed 
a ready-made silver unit (the uncia) from the Romans, they had 
to equate this unit to their old barter unit, the cow, just as in 
modern times the wild tribes of Anam, when borrowing the bar 
of silver from their more civilized neighbors, have had to equate 
it to their native standard, the buffalo ; facts in close accord 
with the well-known derivation of Latin pecunia, money, from 
pecus, English fee from feoh, which still meant cattle, as does 
the German Vieh, and rupee (according to some) from Sanskrit 
rupa, also meaning cattle. 

4. Shells as Money 
13 

The Indians had nothing which they reckoned Riches, before 
the English went among them, except Peah, Moenoke, and such 
like trifles made out of the CunJc Shell. These past with them 
instead of Gold and Silver, and serv'd them both for Money, and 
Ornament. It was the English alone that taught them first to put 
a value on their Skins and Furs, and to make a Trade of them. 

Peak is of two Sorts, or rather of two Colours, for both are 
made of one Shell, tho' of different Parts ; one is a dark Purple 

1 Victor A. L. Morier, Murray's Magazine, August, 1889, p. 181. 

2 Trans-Caucasia, p. 410 (English translation, 1854). 

3 From Beverly's History of Virginia (2d edition, 1722). 



THE NATURAL HISTORY OK .MONKV 391 

Cylinder, ;uul the other a white ; they are both made in Size, 
and Figure alike, and commonly much resembling the English 
Bu(/l(U, but not so transparent nor so brittle. Tliey aie wrought 
as smooth as (ilass, being one third of an Inch long, and about 
a Quarter Diameter, strung by a hole drill'd thro' the Center. 
The dark Colour is the dearest, and distinguish'd by the Name 
of Wampom Peak. The JEnglish Men that are call'd Indian Trad- 
ers, value the Wampom Peak, at eighteen Pence ^jcr Yard, and 
the white Peak at nine Pence. The Indians also make Pipes of 
this, two or three Inches long, and thicker than ordinary, which 
are much more valuable. They also make Rnntees of the small 
Shell, and grind them as smooth as Peak. These are either 
large like an oval Bead, and drill'd the length of the Oval, or 
else they are circular and flat, almost an Inch over, and one 
Third of an Inch thick, and diill'd Edgeways. Of this Shell 
they also make round Tablets of about four Inches Diameter, 
which they polish as smooth as the other, and sometimes they 
etch or grave thereon. Circles, Stars, a half Moon, or any other 
Figure suitable to their Fancy. These they wear instead of 
Medals before or behind their Neck, and use the Peak, Run- 
tees, and Pipes for Coronets, Bracelets, Belts, or long Strings 
hanging down before the Breast, or else they lace their Gar- 
ments with them, and adorn their Tomahawks, and every other 
thing that they value. 

They have also another Sort which is as current among them, 
but of far less Value ; and this is made of the Cockle shell, 
broken into small bits with roug-h Edcjes, drill'd through in the 
same ]\Ianner as Beads, and this they call Roenoke, and use it 
as the Peak. 

These Sorts of Money have their Rates set upon them as 
unalterable, and current as tlie values of our Money are. 

The Indians have likewise some Pearl amongst them, and 
formerly had many more, but where they got them is uncertain, 
except they found them in the Oyster-Banks, whicli are fre- 
quent in this Country. 



392 SELECTED READINGS IN ECONOMICS 

III 

The subject of shell money has hitherto received little more 
than casual mention. Immense quantities of it were formerly 
in circulation among the California Indians, and the manufac- 
ture of it was large and constant, to replace the continual 
wastage which was caused by the sacrifice of so much upon the 
death of wealthy men, and by the propitiatory sacrifices per- 
formed by many tribes, especially those of the Coast Range. 
From my own observations, which have not been limited, and 
from the statements of pioneers and the Indians themselves, I 
hesitate little to express the belief that every Indian in the 
state, in early days, possessed an average of at least one hun- 
dred dollars' worth of shell money. This would represent the 
value of about two women (though the Nishinam never actually 
bought their wives), or two grizzly-bear skins, or twenty-five 
cinnamon-bear skins, or about three average ponies. This may 
be considered a fair statement of the diffusion of wealth among 
them in their primitive condition. 

The manufacture of large, quantities of it nowadays by Amer- 
icans with machinery has diminished its purchasing power by 
increasing its amount. The younger, English-speaking Indians 
scarcely use it at all, except in a few dealings with their elders, 
or for gambling. One sometimes lays away a few strings of it, 
for he knows he cannot squander it at the stores, and is thus 
removed from temptation and possible bankruptcy ; and when 
he wishes for a few dollars American money he can raise it by 
exchanging with some old Indian who happens to have gold. 
Americans also sometimes keep it for this purpose. For in- 
stance, I have known an American who associated a good deal 
with the Indians to buy a pony for fifteen dollars gold, and 
sell it to an old Indian for forty dollars shell money. By con- 
verting this amount into gold in small sums at a time he cleared 
twenty-five dollars in the course of a few months. It is singular 
how the old Indians cling to this currency when they know that 
it will purchase nothing from the stores; but then their wants 
1 Powers, The Tribes of California, pp. 335-336. 



THE NATUKAL HISTORY OF MOKE^ 393 

are fow and mostly supplied from tlie sources of nature ; and, 
besides that, this money has a certain religious value iu their 
minds, as being alone worthy to be offered up on the funeral 
pyre of departed friends or famous chiefs of their tribe. 

nil 

The native money in New Britain consists of small cowrie 
shells strung on strips of cane, which hi Duke of York is called 
dewarra. It is measured in lengths, the first length being from 
hand to hand across the chest with the arms extended ; second 
length from the center of the breast to the hand, one arm ex- 
tended; and the third from the shoulder to the tip of the fingers 
along the arm ; fourth, from the elbow to the tip of the fingers ; 
fifth, from the wrist to the tip of the fingers ; and the sixth, 
finger lengths. Fish are generally bought by their length in 
dewarra unless they are too small. A large pig will cost 
from thirty to forty lengths of the first measure, and a small 
one, ten. 

The dewarra is made up for convenience into coils of one 
hundred fathoms or first lengths ; sometimes as many as six 
hundred fathoms are coiled together, but not often, as it would 
be too bulky to remove quickly in case of an invasion or war, 
when the women carry it away to hide ; tliese coils are very 
neatl}^ covered Avith wickerwork, like the bottom of our cane 
chairs. If asked where the shells come from, the natives will 
tell you that they do not know ; but several of the chiefs do, 
and it is from a place called Nukani, a considerable distance 
down tlie northwest coast. 

The shells are l)uried in the earth to bleach them, after which 
they are tapped Avith a stone on tlie top, which breaks a small 
hole ; they are tlien strung on stiijjs of cane ; this last process 
is, I believe, done by the chiefs alone. 

The measurement of the shell money is the same in New 
Britain as here, though it is called by another name (taboo). At 
Mioko and I tuan they use another kind of money as well as 
1 Powell, Wanderings in a Wild Country, pp. 55-57. 



394 SELECTED READINGS IN ECONOMICS 

this, the other being made of a little bivalve shell, through 
which they bore a hole and string it on pieces of native-made 
twine ; it is also chipped all around until it is about a quarter 
of an inch in diameter, and then smoothed down into even 
disks with sand and pumice stone. This is of no use in Duke 
of York island, but is eagerly asked for in Birara (another con- 
necting link between the south of Duke of York and that 
district of New Britain). 

5. Other Commodities as Money: The Metals 

I. The Currency of the Aztecs ^ 

Their commerce was not only carried on by way of exchange, 
as many authors report, but likewise by means of real purchase 
and sale. They had five kinds of real money, though it was 
not coined, Avhich served them as a price to purchase whatever 
they wanted. The first was a certain species of cacao, different 
from that which they used in their daily drink, which was in 
constant circulation through the hands of traders, as our money 
is amongst us. They counted the cacao by Xiquipilli (this, as 
we have before observed, was equal to eight thousand), and to 
save the trouble of counting them when the merchandize was 
of great value, they reckoned them by sacks, every sack having 
been reckoned to contain three Xiquipilli, or twenty-four thou- 
sand nuts. The second kind of money was certain small cloths 
of cotton, which they called patolquachtli, as being solely des- 
tined for the purchase of merchandizes which were immediately 
necessary. The third species of money was gold in dust, con- 
tained in goose-quills, which by being transparent, shewed the 
precious metal which filled them, and in proportion to their size 
were of greater or less value. The fourth, which most resembled 
coined money, was made of pieces of copper in the form of a T, 
and was employed in purchases of little value. The fifth, of 
which mention is made by Cortes, in his last letter to the em- 
peror Charles the Vth, consisted of thin pieces of tin. 

1 Clavijero, History of Mexico, Bk. VII. 



THE NATURAL HISTORY OF ]\1()NEY 395 

//. The Currency of the Queen Charlotte Islanders ^ 

Among most of the coast tribes the dentalium shell was 
prized, but not so much as a means of exchange among them- 
selves as for barter with the Indians of the interior. By the 
Haidas tlie dentalium is called kico-tsing, but as these people 
were by their position debarred from the trade with the inte- 
rior, it was probably never of so great value to them. It is still 
sometimes worn in ornaments, but has disappeared as a medium 
of exchange. 

Another article of purely conventional value, and serving as 
money, is the " copper." This is a piece of native metal beaten 
out into a flat sheet. . . . These are not made by the Haidas, 

— nor indeed is the native metal known to exist in the islands, 

— but are imported as articles of great worth from the Chil-kat 
country north of Sitka. Much attention is paid to the size 
and make of the copper, which should be of uniform but not 
too great thickness, and give forth a good sound when struck 
with the hand. At the present time spurious coppers have 
come into circulation, and though these are easily detected by 
an expert, the value of the copper has become somewhat re- 
duced, and is often more nominal than real. F'ormerly ten 
slaves were paid for a good copper, as a usual price ; now they 
are valued at from forty to eighty blankets. 

The "blanket" is now, however, the recognized currency, 
not only among the Haidas, but generally along the coast. It 
takes the place of the beaver-skin currenc}' of the interior of 
British Columbia and the Northwest Teriitory. The blankets 
used in ti'ade are distinguished by points, or marks on the edge, 
woven into their texture, the best being four point, the smallest 
and poorest one point. The acknowledged unit of value is a 
single two-and-a-half-point blanket, now worth a little over a 
dollar and a half. Everything is referred to this unit; even 
a large four-point blanket is said to be worth so many blankets. 
The Hudson Bay Company at their posts, and other traders, 

1 Dawson. "Report on the Queen Charlotte Islands," Geological Survey of 
Canada, 1878-1879, p. 135 B. 



396 SELECTED READINGS IN ECONOMICS 

not infrequently buy in blankets, taking them — when in good 
condition — from the Indians as money, and selling them out 
again as required. 

Blankets are carefully stowed away in large boxes, neatly 
folded. A man of property may have several hundred. The 
practice of amassing wealth in blankets no doubt had its origin 
in an earlier one of accumulating the sea-otter and fur-seal 
robes, which stood in the place of blankets in former days. 
This may help to explain the rich harvest of these skins which 
the first traders to the Queen Charlotte Islands gathered. 

III. The Currency of the Abyssinians ^ 

The object Walderhoes and I had now in view was to change 
the dollar, and for this purpose we sought out that portion of 
the plain where, in several orderly lines, numerous salt brokers 
sat behind heaps of ahmulahoitsh, the remarkable currency of 
Shoa, in common with all parts of Abyssinia. 

These ahmulahs, as they may be called, are thin bricks of salt, 
which have been not inaptly compared in size and shape to a 
mower's whetstone ; they vary some little in size, but few of them 
are less than eight inches long. Their form is rather interesting, 
from the fact of their being cut somewhat in the ancient form of 
money pieces, thinner at the two extremities than in the middle, 
and if of metal might not have been inaptly termed a spit. The 
breadth across the center of the ahmulah is a little over two, 
inches, whilst at the extremities it scarcely measures one inch. 
The height or thickness is uniform, being usually about one 
inch and a quarter. As may naturally be supposed, this money, 
consisting of a material so soft and deliquescent as common salt, 
becomes: denuded by use, ,and a great difference consequently 
exists between the weight of a new specimen and one that has 
been in exchange for only a. few months. During the rainy 
season, especially, in Abyssinia the waste of the ahmulahs is 
very great, although the inhabitants, by burying them in the 
wood ashes of their large hearths, or suspending them in the 

1 Johnston, Travels in Southern Abyssinia, pp. 232-237. 



THE NATURAL HISTORY OF MONEY 397 

smoke from the roof, endeavor to preserve them, at that 
time, from the action of the moistuie in the atmosphere. 

It not unfrequently happens, either from carelessness or 
atmospherical causes, that the ahmulahs become very cellular 
and light. In that case the holes are stopped up with a paste of 
meal and fine salt dust, but the ahmulah so adulterated is gen- 
erally rejected at once when offered, or a very considerable 
reduction is made in its value when any article is purchased. 

When by any accident the salt pieces are broken they are 
receivable only as common salt, although sometimes, if cut 
into two pieces, these are bound round with a piece of very 
pliant tough bark called lit., and at a diminished value still 
circulate. 

Besides ahmulahs the Shoan markets are supplied with a 
rough broken salt in thin broad pieces, of no use but for culinary 
purposes, by the Daiikalli, who bring it to Dinnomalee from the 
Bahr Assal, or salt lake, near Tajourah. This kind of salt is of 
less value than the ahmulah, and is only employed as barter, 
and the solid money piece will command weight for weight one 
half as much more of the Adal salt ; so that the Shoans submit 
to a loss of just fifty per cent of material for the convenience 
of their clumsy currency. 

IV. Currency in Central Africa ^ 

A regular system of excliange is carried on in arrows, beads, 
bead necklaces, teeth necklaces, brass rings for the neck and 
arm, and bundles of small pieces of iron in flat, round, or oval 
disks. All these different articles are given in exchange for 
cattle, corn, salt, arrows, etc. 

The nearest approach to mone3% in our sense, is seen in the 
flat round pieces of iron, which are of different sizes from one 
half to two feet in diameter, and two thirds of an inch thick. 
They are much employed in exchange. 

^ Felkln, " Notes on the Madi or Morn Trilie of Central Africa," in Prnreetl- 
ings of the Royal Society of Edlnbimih. XII, 350. 



398 SELECTED HEADINGS IN ECONOMICS 

This is the form in which they are kept and used as money, 
but they are intended to be divided into two, heated, and made 
into hoes. They are also fashioned into other implements, such 
as knives, arrowheads, etc., and into little bells to hang round 
the waist for ornament, or round wandering cows' necks. 

Ready-made hoes are not often used in barter ; iron as above 
mentioned is preferred, and is taken to a blacksmith to finish 
according to the owner's requirements. 

Any tools may be obtained ready-made from a smith, and may 
be used in barter when new. 

6. Barter Currency in North Carolina: Gresham's Law^ 

The Province of North Carolina was first settled by People 
from Virginia in low circumstances who moved hither for the 
benefit of a larger and better range for their Stocks, from such 
a small Beginning it was a great many years before it appeared 
there was any Increase of Inhabitants sufficient to form a Gov- 
ernment the whole number of Taxables in Thirty years time 
not amounting to one thousand, and those generally dwelt on 
the North side of Albemarle sound, and composed the four 
Precincts of Chowan, Perquimons, Pasquotank & Currituck, 
which Precincts, now called Counties sent each of them five 
Members to the Assembly, the whole number at that time 
amounting to those Twenty Members. 

The poverty of the first Inhabitants made (for want of a better 
currency) to Enact in their Assemblies that all Payments what- 
soever, might be made in sundry Commodities or Products of 
the Province a List whereof here follows, agreable to the Law 
as it past upon the Revise, Anno : 1715. 

£. s. (I. 

Indian Corn per bushel — 1 8 

Tallow per Pound — — 5 

Beaver & Otter Skins per Pound — 2 6 

Butter per Pound — — 6 

Raw buck and Doe Skins per Pound — — 9 

Feathers per Pound — 1 4 

1 From letter of Governor Johnston to the Board of Trade (1749), Colonial 
Records of North Carolina, IV, 920-921. 



THE KATLKAL HISTORY ()F M<)M:\ 3y<J 

t. s. <l. 

Pitch per Barrel full guaged 1 — — 

Pork per Barrel 2 5 — 

Tobacco per 100 cwt — 10 — 

Wheat per Bushel — 3 6 

Leather taiiu'd uucurried per pound — — 8 

Wild Cat Skius per piece — 1 — 

Cheese per Pound — — 4 

Drest Buck & Doe Skins per Pound — 2 (i 

Tarr per Barrel full guaged — 10 — 

Whale Oil per Barrel 1 10 — 

Beef per Barrel 1 10 — 

This method has been continued down to this time with very 
little Alteration to the great Damage of the Revenue it being a 
stated rule, that of so many Commodities the worst sort only 
were paid. Altho' many attempts have been made to remedy 
the Inconvenience attending such a currency it has always 
proved fruitless (the People being generally fond of a Law 
which gave them such Advantages). 

7. Why Coinage is Necessary ' 

A coinage system does not exist in Burma. The former king 
coined some rupees stamped with the peacock, but this money 
has wholly disappeared. The bullion which passes in trade con- 
sists of silver alloyed with copper in three or four different pro- 
portions. The best, which is almost pure, is called hau ; the 
next dain or youetni ; and the least valuable, but most com- 
monly employed in small dealings, is called azekiay. When a 
person goes to market he carries a piece of this silver, a hammer, 
a chisel, a pair of scales, and a set of weights. " What is the 
price of these kitchen pots?" "Show me your money," replies 
the merchant, who fixes his price at a larger or smaller figure 
according to the appearance of the silver. The buyer thE>n calls 
for a small anvil, and hammers at the piece of silver until he 
thinks he has chipped off the right amount. Then he weighs the 
silver in liis own scales, since the merchant's are not to l)e trusted, 
and adds or subtracts enough to make the weight precisely right. 

1 Bastian, Die Vcilker des ostlichen Asiens, II, ii. 



400 SELECTED EEADINGS IN ECONOMICS 

Of course considerable metal is lost by the process of chipping ; 
and it is always best to buy, not the exact amount of the com- 
modity one desires, but the amount equivalent to the piece of 
silver one has broken off. In large purchases, which are made 
only with the finest silver, the process is still more troublesome, 
since an assayer must be called to determine the precise fineness 
of the silver, and he must be paid for his services. ... In 
Upper Burma for the smallest transactions they use lumps of 
lead as well as the poorest grade of silver (azekiay). A dealer 
must have at hand a large box of this lead, which has to be 
weighed on larger scales than are used for weighing the silver. 

8. Representative Money 

I. Leather Money in Russia ^ 

The annals of Russia afford us a fact even more curious than 
those I have just cited, — the existence of a credit money repre- 
senting not gold and silver, but skins and furs. At the period 
when skins were used in Russia, the inconvenience of handling 
such a bulky and perishable medium of exchange gave rise to 
the idea of replacing them by little pieces of stamped leather 
which thus became tokens redeemable in skins and furs. After- 
ward, when a coinage system was established, these leather 
tokens represented the fractional parts of the silver kopeck. 
They continued to be thus used until the year 1700, at least in 
the town of Kalouga and its vicinity, as we learn from an edict 
of Peter I, by which this prince ordered that the tokens should 
be exchanged for the small copper pieces which lie had just 
had coined for this purpose. 

II. Token Money in West Africa ^ 

Among the Fan tribes of the West African coast there is " a 
very peculiar and interesting form of currency, — hikei, little 
iron imitation ax heads which are tied in bundles called utet, 

1 Storch, Cours d'^conomie politique, IV, 79. 

2 Mary Kingsley, Travels in West Africa, pp. 320-321 [London, 1897]. 



THE NATURAL HISTORY OF MONEY 4Ul 

ten going to one bundle ; with bikgi the price of a wife must be 
paid. You cannot do so with rubber or ivory or goods. These 
bikt'i pass, however, as common currency among the Fans, for 
other articles of trade as well. ... I thought I saw in bikei a 
certain resemblance in underlying idea with the early Greek 
coins I had seen at Cambridge, made like the fore parts of 
cattle : and I have little doubt that the articles of barter among 
the Fans, before the introduction of the rubber, ebony, and ' 
ivory trades, which in this district are comparatively recent, 
were iron implements. The Fans are good workers in iron ; and 
it would be in consonance with well-known instances among 
other savage races in the matter of stone implements, that these 
things, important of old", should survive, and should be employed 
in the matter of such an old and important affair as marriage." 

///. Chinese Paper Money in the Thirteenth Century ^ 

Now that I have told you in detail of the splendour of this City 
of the Emperor's, I shall proceed to tell you of the Mint which 
he hath in the same city, in the which he hath his money coined 
and struck, as I shall relate to you. And in doing so I shall 
make manifest to you how it is that the Great Lord may well be 
able to accomplish even much more than I have told you, or 
am going to tell you, in this Book. For, tell it how I might, 
you never would be satisfied that I was keeping within truth 
and reason ! 

The Emperor's Mint then is in this same City of Cambaluc, 
and the way it is wrought is such that you might say he hath 
the Secret of Alchemy in perfection, and you would be right ! 
For he makes his money after this fashion. 

He makes them take of the bark of a certain tree, in fact of 
the Mulberry Tree, the leaves of which are the food of the silk- 
worms, — these trees being so numerous that whole districts are 
full of them. What they take is a certain fine white bast or skin 
which lies between the wood of the tree and the thick outer 

1 Travels of Marco Polo, edited by Henry Yule, I, pp. 428-420 [London, 
1903]. 



402 SELECTED READINGS IN ECONOMICS 

bark, and this they make into something resembling sheets of 
paper, but black. When these sheets have been prepared they 
are cut up into pieces of different sizes. The smallest of these 
sizes is worth a half tornesel ; the next, a little larger, one 
tornesel ; one, a little larger still, is worth half a silver groat of 
Venice ; another a whole groat ; others yet two groats, five 
groats, and ten groats. There is also a kind worth one Bezant 
of gold, and others of three Bezants, and so up to ten. All these 
pieces of paper are issued with as'much solemnity and authority 
as if they were of pure gold or silver; and on every piece a 
variety of officials, whose duty it is, have to write their names, 
and to put their seals. And when all is prepared duly, the chief 
officer deputed by the Kaan smears the Seal entrusted to him 
with vermilion, and impresses it on the paper, so that the form 
of the Seal remains printed upon it in red ; the Money is then 
authentic. Any one forging it would be punished with death. 
And the Kaan causes every year to be made such a vast quantity 
of this money, which costs him nothing, that it must equal in 
amount all the treasure in the world. 

With these pieces of paper, made as I have described, he 
causes all payments on his own account to be made ; and he 
makes them to pass current universally over all his kingdoms 
and provinces and territories, and whithersoever his power and 
sovereignty extend. And nobody, however important he may 
think himself, dares to refuse them on pain of death. And in- 
deed everybody takes them readily, for wheresoever a person 
may go throughout the Great Kaan's dominions he shall find 
these pieces of paper current, and shall be able to transact all 
sales and purchases of goods by means of them just as well as 
if they were coins of pure gold. And all the while they are so 
light that ten Bezants' worth does not weigh one golden Bezant. 

Furthermore all merchants arriving from India or other coun- 
tries, and bringing with them gold or silver or gems and pearls, 
are prohibited from selling to anyone but the Emperor. He has 
twelve experts chosen for this business, men of shrewdness and 
experience in such affairs ; these appraise the articles, and the 
Emperor then pays a liberal price for them in those pieces of 



THE :sATL:iiAL iUSTUliV OK MMNEV -iOo 

paper. The merchants accept his price readily, for in the lirst 
place they would not get so good an one from anybody else, and 
secondly they are paid without any delay. And with this paper- 
money they can buy what they like anywhere over the Empire, 
whilst it is also vastly lighter to cair}- about on their journeys. 
And it is a truth that the merchants will several times in the 
year bring wares to the amount of 400,000 Bezants, and the 
Grand Sire pays for all in that paper. So he buys such a quantity 
of those precious things every year that his treasure is endless, 
whilst all the time the money he pays away costs him nothing 
at all. Moreover, several times in the year proclamation is made 
through the city that any one who may have gold or silver or 
gems or pearls, by taking them to the Mint shall get a handsome 
price for them. And the owners are glad to do this, because they 
would find no other purchaser give so large a piice. Thus the 
quantity they bring in is marvellous, though those who may not 
choose to do so may let it alone. Still, in this way, nearly all 
the valuables in the country come into the Kaan's possession. 

• When any of those pieces of paper are spoilt — not that they 
are so very flimsy either — the owner carries them to the Mint, 
and by paying three per cent on the value he gets new pieces in 
exchange. And if any Baron, or any one else soever, hath need 
of gold or silver or gems or pearls, in order to make plate, or 
girdles, or the like, he goes to the Mint and buys as much as he 
list, paying in this paper-money. 

Now you have heard the ways and means whereby the Great 
Kaan may have, and in fact has, more treasure than all the Kings 
in the World ; and you know all about it and the reason wh}-. 
And now I will tell you of the Great Dignitaries which act in 
this City on behalf of the Emperor. 

IV. Tobacco Notes in the Colony of Virginia ^ 

No further attempt was made to reintroduce this note sys- 
tem until 1730, when it was established in a slightly different 
form which gave less offense to the planters. This act " For 

* Ripley, Financial History of Virginia, pp. 148-151. 



404 SELECTED EEADINGS IN ECONOMICS 

Amending the Staple of Tobacco ; and preventing Frauds in 
His Majesty's Customs," was passed by the Assembly with two 
distinct objects in view. The first of these was to provide for 
such inspection of the staple export of the colony as should pre- 
vent it from being brought into discredit abroad, to the damage 
of the general interests of the colony. The second and minor 
object was to provide a convenient medium oi circulation for 
local or domestic exchanges, and especially for the payment of 
taxes, quitrents, fees, and other public dues. In this latter sense 
it may be regarded as a mint regulation to prevent fraud in the 
payment of debts through debasement of the medium of exchange. 
Since our purpose is to show its fiscal importance merely, this 
latter object alone will be held in view. The first consideration 
belongs rather to a history of commerce. The act of 1730 pro- 
vided that no tobacco should be exported from the colony, or 
used in the payment of any public or private debts, until it had 
been inspected by two public officials appointed by the governor 
on the nomination of the county courts. This tobacco was then 
to be deposited in casks in public warehouses conveniently 
located in each county for that purpose, there to remain until 
it was exported. If it were to be used for the payment of any 
domestic debts, " promissory notes " were issued to the full 
amount of the tobacco on deposit. These " transfer notes " 
were to state the amount, the particular brand, the date of 
deposit, and the Avarehouse wherein the tobacco lay. They 
were to be a legal tender for all tobacco debts in that particular 
county where the warehouse was located, or in any adjacent 
ones not separated from it by one of the great rivers. They 
were to be convertible into tobacco on demand at the warehouse 
where the tobacco was deposited, but they were not to constitute 
a lien upon any particular casks ; they were merely representa- 
tive of a given amount of tobacco of a certain grade. In order 
to prevent discrimination or inequality in the payment of public 
debts, due to the difficulty and cost of transportation to the ware- 
houses from different places more or less distant, certain draw- 
backs were permitted. These varied from thirty per cent in the 
inland counties to ten per cent on the shores of the Chesapeake 



I 



THE NATURAL T[1ST0RY OF MONEY 405 

and on the gi-eat rivers. For private exchanges, however, such 
drawbacks were neutralized by reimbursing the creditor from 
tobacco levied by the county courts for that purpose. In case of 
destruction of the warehouses by fire or flood, the Assembly 
held itself liable for the loss incurred. 

A substantial addition to this system w^as made in 1734, 
when a second variety of circulating notes was authorized. This 
was to provide for the case of the " private crops of gentlemen," 
which gave so much offense in the first law. This law^ applied 
to all tobacco which was merely stored awaiting export, and not 
intended for the payment of public dues. For such tobacco, so- 
called " crop notes " w^re issued against specified hogsheads, 
which were distinctly branded and specially reserved until the 
notes representing them should be presented. The inspection 
for this tobacco w^as less rigorous, and the fees w^ere only about 
one half as great as those allowed for the inspection of transfer 
tobacco. Provision w' as made for an exchange of crop for trans- 
fer notes by the payment of an additional fee. 

******** 

This system underwent but few modifications in the colonial 
period, except so far as changes in administration were made 
necessary by the increase of population and the determined 
attempts to evade the law. The transfer tobacco which was 
received in the payment of public debts was sold annually, and 
the proceeds were devoted to the proper uses. They Avere not 
to pass current after that year, but others were substituted for 
them. Gradually the crop notes seem to have become used for 
tlie payment of debts, which apparently was not the original 
intention of the legislators. This led to considerable frauds, and 
in 1748 a more stringent law was enacted, strictly and effectively 
limiting the legal tender quality to the transfer and crop notes. 
The system was suspended for a time during the war of 1755^ 
but in 17G1 was revived in the old form. The only change pre- 
vious to the Revolution was a reduction of the time of deposit 
for crop tobacco notes from eighteen to twelve months. This 
was found necessary to prevent the great waste from shrinkage. 



CHAPTER XV 

PAPER MONEY IN FRANCE ^ 

X 

Near the end of the year 1789 the French nation found itself 
in deep financial embarrassment : there was a heavy debt and a 
serious deficit. 

The vast reforms of that year, though a lasting blessing 
politically, were a temporary evil financially. There was a gen- 
eral want of confidence in business circles ; capital had shown 
its proverbial timidity by retiring out of sight as far as possible ; 
but little money was in circulation ; throughout the land was 
temporary stagnation. 

Statesmanlike measures, careful watching, and wise manage- 
ment, would doubtless have led, ere long, to a return of confi- 
dence, a reappearance of money, and resumption of business ; 
but this involved waiting, self-denial, and self-sacrifice ; and thus 
far in human history those are the rarest products of an im- 
proved political condition. Few nations, up to this time, have 
been able to exercise these virtues ; and France was not then 
one of those few. 

There was a general looking about for some short road to 
prosperity ; ere long, the idea was set afloat that the great want 
of the country was more of the circulating medium ; and this 
was speedily followed by calls for an issue of paper money. The 
Minister of Finance at this period was Necker. In financial 
ability he was acknowledged among the great bankers of Europe ; 
but he had something more than financial ability : he had a deep 
feeling of patriotism and a high sense of personal honor. The 
difficulties in his way were great, but he steadily endeavored 
to keep France faithful to those financial principles which the 

1 By Honorable Andrew D. White. Reprinted, by consent of the author and 
publisher, from Fiat Money Inflation in France. Copyright, 1877, by D. Apple- 
ton & Company. New York. 

406 



PAPEK MOXEY IN FKANCE 407 

general experience of modern times had established as the only 
path to national safety. As difficulties arose, the National Assem- 
bly drew away from him, and soon came among the members mut- 
tered praises of paper money ; members like AUarde and Gouy 
held it up as a panacea, — as a way of " securing resources with- 
out paying interest." This was echoed outside ; the journalist 
Loustalot caught it up and proclaimed its beauties ; iMarat, in his 
newspaper, also joined the cries against Necker, picturing him — 
a man who gave up health and fortune for the sake of France — 
as a wretch seeking only to enrich himself from the public purse. 

Against the tendency to the issue of irredeemable paper Necker 
contended as best he might. . . . But the current was too strong ; 
on the 19th of April, 1790, the Finance Committee of the 
Assembly reported that " the people demand a new circulating 
medium " ; that " the circulation of paper money is the best of 
operations"; that "it is the most free because it reposes upon 
the will of the people " ; that " it will bind the interests of the 
citizens to the public good." 

The report appealed to the patriotism of the French people 
with the following exhortation : " Let us show to Europe that we 
understand our own resources ; let us immediately take tlie broad 
road to our liberation, instead of dragging ourselves along the 
tortuous and obscure paths of fragmentary loans " ; it concluded 
by recommending an issue of paper money, carefully guarded, to 
the amount of four hundred million francs. 

******** 

But mingled with the financial argument was a very strong 
political argument. The nation had just taken as its own the 
vast real property of the French Church, the pious accumulations 
of thirteen hundred years. There were princely estates in the 
country, sumptuous palaces and conventual buildings in the 
towns ; these formed about one third of the entire real property 
of France, and amounted in value to about four thousand million 
francs, yielding a yearly income of about two hundred millions. 
By one sweeping stroke all this had become the property of the 
nation ; never, apparently, did a nation secure a more solid basis 
for a great financial future. 



408 SELECTED READINGS IN ECONOMICS 

There were two great reasons why French statesmen desired 
speedily to sell these lands. First, a financial reason, — to obtain 
money to relieve the government. Secondly, a political reason, 
— to get this land distributed among the thrifty middle classes, 
and so to commit them' to the Revolution and to the govern- 
ment which gave their title. 

It was urged, then, that the issue of four hundred millions of 
paper would give the treasury something to pay out immediately, 
and relieve the national necessities ; that, having been put into 
circulation, this paper money would stimulate business ; that it 
would give to all capitalists, large or small, the means for buy- 
ing of the nation the ecclesiastical real estate, and that from the 
proceeds of this real estate the nation would again obtain new 
funds for new necessities : never was theory more seductive both 
to financiers and statesmen. 

But it would be a great mistake to suppose that the statesmen 
of France, or the French people, were ignorant of the dangers of 
issuing irredeemable paper money. No matter how skillfully the 
bright side of such 'a currency was exhibited, all thoughtful men 
in France knew something of its dark side. They knew too 
well, from that fearful experience in John Law's time, the 
difficulties and dangers of a currency not based upon specie. 
They had then learned how easy it is to issue it ; how difficult 
it is to check an overissue ; how seductively it leads to the 
absorption of the means of the workingmen and men of small 
fortunes ; how surely it impoverishes all men living on fixed 
incomes, salaries, or wages ; how it creates on the ruins of the 
prosperity of all workingmen a small class of debauched specu- 
lators, the most injurious class that a nation can harbor, more 
injurious, indeed, than professional criminals whom the law 
recognizes and can throttle ; how it stimulates overproduction at 
first, and leaves every industry flaccid afterward; how it breaks 
down thrift, and develops political and social immorality. All 
this France had been thoroughly taught by experience. 
******** 

Oratory prevailed over science and experience. In December, 
1789, came the first decree. After much discussion it was 



PAPEli M0:NEY iX FitAXCE 401) 

decided to issue four hundred million francs in paper money, 
based upon the landed propert}' of the nation as its security. 
The deliberations on this first decree, and on the bill carrying it 
into effect, were most interesting ; prominent in the debate were 
Necker, Dupont, Maury, Cazales, Bailly, and many others hardly 
inferior. . . . 

At last, in April, 1790, the four hundred million francs were 
issued in assignats — paper money secured by a pledge of pro- 
ductive real estate, and bearing interest to the holder at three per 
cent. No irredeemable currency has ever claimed a more scien- 
tific and practical guarantee for its goodness and for its proper 
action on public finances. On one side it had what the world 
universally recognized as the most practical security, — a mort- 
gage on productive real estate of vastly greater value than the 
issue. On the other hand, as the notes bore interest, there was 
every reason for their being withdrawn from circulation when- 
ever they became redundant. 

As speedily as possible the notes were put into circulation. 
Unlike those issued in John Law's time, they were engraved in 
the best style of the art. To stimulate loyalty, the portrait of 
the king was placed in the center; to stimulate patriotism, 
patriotic legends and emblems surrounded him ; to stimulate 
public cupidity, the amount of interest which the note would 
yield each day to its holder was printed on the margin ; and the 
whole was duly garnished with stamps and signatures, showing 
that it was under careful registration and control. 

******** 

The first result of this issue was apparently all that the most 
sanguine could desire ; the treasury was at once greatly relieved ; 
a portion of the public debt Avas paid ; creditors were encouraged ; 
credit revived ; ordinary expenses were met, and the paper 
money having thus been passed from the government into the 
midst of the people, trade was revived, and all difficulties seemed 
past. The anxieties of Necker, the prophecies of Bergasse, 
Maury, and Cazales, seemed proven utterly futile. And, indeed, 
it is quite possible that, if the national authorities had stopped 
with this issue, few of the evils which afterward arose would 



410 SELECTED HEADINGS IN ECONOMICS 

have been severely felt ; the four hundred millions of paper 
money then issued had simply taken the place of a similar 
amount of specie. But soon there came another result : times 
grew less easy ; by the end of August, within four months after 
the issue of the four hundred million assignats, the government 
had spent them, and was again in distress. The old remedy im- 
mediately and naturally occurred to the minds of men. Thought- 
less persons throughout the country began to cry out for another 
issue of paper ; thoughtful men then began to recall what their 
fathers had told them about the seductive path of paper-money 
issues in John Law's time, and to remember the prophecies 
that they themselves had heard in the debate on^ the first issue 
of assignats less than six months before. 

In that debate, as we have seen, Maury and Cazales foretold 
trouble. Necker, who was less suspected of reactionary tend- 
encies, had certainly feared danger. The strong opponents of 
paper had prophesied, at that time, that, once on the downward 
path of inflation, the nation could not be restrained, and that 
more issues would follow. The supporters of the first issue had 
asserted that this was a calumny ; that France could and would 
check these issues whenever she desired. 

The condition of opinion in the Assembly was, therefore, 
chaotic ; a few schemers and dreamers were loud and outspoken 
for paper money ; many of the more shallow and easy-going 
were inclined to yield ; the more thoughtful endeavored man- 
fully to breast the current. 

^ ^ ^ ^ ^ ^ ^ ^ 

Into the midst of this debate is brought a report by Necker. 
Most earnestly he endeavors to dissuade the Assembly from 
the proposed issue ; suggests that other means can be found for 
accomplishing the result, and predicts terrible evils. But the 
current is again running too fast. The only result is that 
Necker is spurned as a man of the past. He at last sends in 
his resignation, and leaves France forever. The paper-money 
demagogues shout for joy at his departure ; their chorus rings 
through the journalism of the time. No words can express 
their contempt for a man who cannot see the advantages of 



I 



i'apeh :\ioney in fkance 411 

filling the treasury with the issues of a printing press. Marat, 
Hebert, and Camille Desmoulins are especially jubilant. 
******** 

The nation at large now began to take part in the debate ; 
thoughtful men saw that here was the turning point between 
good and evil ; that the nation stood at the parting of the 
ways. Most of the great commercial cities bestirred themselves 
and sent up remonstrances against the new emission, twenty- 
five being opposed and seven being in favor of it. But on Sep- 
tember 27, 1790, came Mirabeau's great final speech. In this 
he dwelt first on the political necessity involved, declarhig that 
the most pressing need was to get the government lands into 
the hands of the people, and so to commit the class of land- 
holders thus created to the nation, and against the old privi- 
leged classes. 

Through the rest of the speech there is one leading point 
enforced with all his eloquence and ingenuity, — the thorough 
excellence of the proposed currency and the stability of its 
security. He declares that, being based on the pledge of public 
lands, and convertible into them, the notes are better secured 
than if redeemable in specie ; that the precious metals are only 
employed in the secondary arts, while the French paper money 
represents the first and most real of all propert}', the source of 
all production, the land itself ; that, Avhile other nations have 
been obliged to emit paper money, none has ever been so fortu- 
nate as the French nation, for none has ever before been able 
to give landed security for its paper ; that whoever takes French 
paper money has practically a mortgage to secure it on landed 
property which can be easily sold to satisfy his claims, while 
other nations have only been able to give a vague claim on the 
entire nation. " And," he cries, " I would rather have a mort- 
gage on a garden than on a kingdom ! " 

******** 

In vain did Maury show tliat, while the first issues of John 
Law's paper hid lirought apparent prosperity, those that fol- 
lowed brought certain misery ; in vain did he quote from a book 
published in John Law's time, showing that Law was at first 



412 SELECTED KEADINGS IN ECONOMICS 

considered a patriot and friend of humanity ; in vain did he hold 
up to the Assembl}^ one of Law's bills, and appeal to their mem- 
ories of the wretchedness brought on France by them ; noth- 
ing could resist the eloquence of Mirabeau. Barnave follows ; 
says that " Law's paper was based upon the phantoms of the 
Mississippi ; ours upon the solid basis of ecclesiastical lands," 
and proves that the assignats cannot depreciate further. Prud- 
homme's newspaper pours contempt over gold as security for 
the currency, extols real estate as the only true basis, and is 
fervent in praise of the convertibility and self-adjusting features 
of the proposed scheme. In spite of all this plausibility and elo- 
quence, a large minority stood firm to their earlier principles ; 
but on the 29th of September, by a vote of 508 to 423, the 
deed was done ; a bill was passed authorizing the issue of 
eight hundred millions of new assignats, but solemnly declaring 
that in no case should the entire amount put in circulation 
exceed twelve hundred millions. To make assurance doubly 
sure, it is also provided that, as fast as the assignats were 
paid into the treasury for land, they should be burned ; and 
thus a healthful contraction be constantly maintained. 
******** 

France was now fully committed to a policy of inflation ; and, 
if there had been any doubt of this before, it was soon proved 
by an act of the government, very plausible, but none the less 
significant as showing the exceeding difficulty of stopping a 
nation once in the full tide of a depreciated currency. The old 
cry of the " lack of a circulating medium " broke forth again ; 
and especially loud were the clamors for more small bills. This 
resulted in an evasion of the solemn pledge that the circula- 
tion should not go above twelve hundred millions, and that all 
assignats returned to the treasury for land should immediately 
be burned. Within a short time there had been received into 
the treasury for lands one hundred and sixty million francs 
in paper. By the terms of the previous acts this amount 
ought to have been retired. Instead of this, under the plea of 
necessity, one hundred millions were reissued in the form of 
small notes. 



PAPER MONEY IN FRANCE 413 

Yet this was but as a drop of cold water to a parched throat. 
Although there was already a rise in prices which showed that 
the amount needed for circulation had been exceeded, the cry 
for "more circulating medium" was continued. The pressure 
for new issues became stronger ^nd stronger. The Parisian 
populace and the Jacobin Club were especially loud in their 
demands for them ; and a few months later, on June 19, 1791, 
with few speeches, in a silence very ominous, a new issue was 
made of six hundred millions more ; less than nine months 
after the former great issue, with its solemn pledges as to keep- 
ing down the amount in circulation. With the exception of a 
few thoughtful men, the whole nation again sang paeans. 

In this comparative ease of a new issue is seen the action 
of a law in finance as certain as the action of a similar law in 
natural philosophy. If a material body fall from a height, its 
velocity is accelerated, by a well-known law in physics, in a 
constantly increasing ratio : so in issues of irredeemable cur- 
rency, in obedience to the theories of a legislative body, or of 
the people at large, there is a natural law of rapidly increasing 
issue and depreciation. The first inflation bill was passed with 
great difficulty, after a very sturdy resistance, and by a majority 
of a few score out of nearly a thousand votes ; but you observe 
now that new inflation measures are passed more and more easily, 
and you will have occasion to see the working of this same law 
in a more striking degree as this history develops itself. 

Nearly all Frenchmen now became desperate optimists, declar- 
ing that inflation is prosperity. Throughout France there be- 
came temporary good feeling. The nation was becoming fairly 
inebriated with paper money. The good feeling was that of a 
drunkard after his draught ; and it is to be noted, as a simple 
historical fact, corresponding to a physiological fact, that, as the 
diaughts of paper money came faster, the periods of succeeding 
good feeling grew shorter. 

Various bad signs had begun to appear. Immediately after 
this last issue came a depreciation of from eight to ten per cent ; 
•but it is very curious to note the general reluctance to assign 
the right reason. The decline in the purchasing power of paper 



414 SELECTED READINGS IK ECONOMICS 

money was in obedience to one of the simplest laws in social 
physics ; but France had now gone beyond her thoughtful 
statesmen, and took refuge in unwavering optimism, giving 
any explanation of the new difficulties rather than the right 
one. A leading member of the Assembly insisted, in an elabo- 
rate speech, that the cause of depreciation was simply want of 
knowledge and of confidence among the rural population, and 
proposed means of enlightening them. La Rochefoucauld pro- 
posed to issue an address to the people, showing the goodness of 
the currency and the absurdity of preferring coin. The address 
was unanimously voted. . . . 

Attention was next aroused by another menacing fact, — 
specie was fast disappearing. The explanations for this fact also 
displayed wonderful ingenuity in finding false reasons and evad- 
ing the true one. A very common explanation may be found in 
Prudhomme's newspaper, Les Revolutions de Paris, of January 
17, 1791, which declared that "coin will keep rising until 
the people have hung a broker." Another popular theory was 
that the Bourbon family were in some miraculous way draw- 
ing off all solid money to the chief centers of their intrigues 
in Germany. 

Still another favorite idea was that English emissaries were 
in the midst of the people, instilling notions hostile to paper. 
Great efforts were made to find these emissaries, and more than 
one innocent person experienced the popular wrath, under the 
supposition that he was engaged in raising gold and depressing 
paper. Even Talleyrand, shrewd as he was, insisted that the 
cause was simply that the imports were too great and the 
exports too little. As well might he explain the fact that, when 
oil is mingled with water, water sinks to the bottom, by say- 
ing that it is because the oil rises to the top. This disappearance 
of specie was the result of a natural law as simple and sure in 
its action as gravitation : the superior currency had been with- 
drawn because an inferior could be used. . . . 

Still another troublesome fact began now to appear. Though 
paper money had increased in amount, pi-osperity had steadily 
diminished. In spite of all the paper issues business activity 



PAPEK MONEY IX PRANCE 415 

grew more and more spasmodic. Enterprise was chilled, and 
stagnation had set in. Mirabeau, in his speech which decided 
the second great issue of paper, had insisted that, though bankers 
might suffer, this issue would be of great service to manufac- 
turers and restore their prosperity. The manufacturers were 
for a time deluded, but were at last rudely awakened from 
their delusions. The plenty of currency had at first stimulated 
production and created a great activity in manufactures, but 
soon the markets were glutted, and the demand was vastly 
diminished. . . . One manufactory after another stopped. At 
one town, Lodeve, live thousand workmen were discharged 
from the cloth manufactories. Every cause except the right 
one was assigned for this. Heavy duties were put upon foreign 
goods. Everything that tariffs and customhouses could do was 
done. Still the great manufactories of Normandy were closed, 
those of the rest of the kingdom speedily followed, and vast 
numbers of workmen in all parts of the country were thrown 
out of employment. Nor was this the case alone in regard 
to home demand. The foreign demand, which had been at first 
stimulated, soon fell off. In no way can this be better stated 
than by one of the most thoughtful historians of modern times : 
" It is true that at first the assign ats gave the same impulse to 
business in the city as in the country, but the apparent improve- 
ment had no firm foundation even in the towns. Whenever a 
great quantity of paper money is suddenly issued we invariably 
see a rapid increase of trade. The great quantity of the circu- 
lating medium sets in motion all the energies of commerce and 
manufactures ; capital for investment is more easily found than 
usual, and trade receives fresh nutriment. If this paper repre- 
sents real credit, founded upon order and legal security, from 
which it can derive a firm and lasting value, such a movement 
may be the starting point of a great and widely extended 
prosperity, as, for instance, the most splendid improvements in 
English agriculture were undoubtedly owing to the emancipa- 
tion of the country bankers. If, on the contrary, the new paper 
is of precarious value, as was clearly seen to be the case with 
the French assignats as early as February, 1791, it can have no 



416 SELECTED READINGS IN ECONOMICS 

lasting, beneficial fruits. For the moment, perhaps, business 
receives an impulse, all the more violent because every one 
endeavors to invest his doubtful paper in buildings, machines, 
and goods, which under all circumstances retain some intrinsic 
value. Such a movement was witnessed in France in 1791, 
and from every quarter there came satisfactory reports of the 
activity of manufactures. 

" But, for the moment, the French manufacturers derived 
great advantage from this state of things. As their products 
could be so cheaply paid for, orders poured in from foreign 
countries to such a degree that it was often difficult for the 
manufacturers to satisfy their customers. It is easy to see that 
prosperity of this kind must very soon find its limit. . . . When 
a further fall in the assignats took place it would necessarily 
collapse at once, and be succeeded by a crisis all the more 
destructive the more deeply men had engaged in speculation 
under the influence of the first favorable prospects." ^ 

Thus came a collapse in manufacturing and commerce, just 
as it had come before in France ; just as it came afterward in 
Austria, Russia, America, and in all other countries where men 
have tried to build up prosperity on irredeemable paper. 

All this breaking down of the manufactures and commerce 
of the nation made fearful inroads on the greater fortunes ; but 
upon the lesser fortunes, and the little accumulated properties 
of the masses of the nation who relied upon their labor, it pressed 
with intense severity. 

Still another difficulty appeared. There had come a complete 
uncertainty as to the future. In the spring of 1791 no one 
knew whether a piece of paper money representing a hundred 
francs would, a month later, have a purchasing power of a hun- 
dred francs, or ninety francs, or eighty, or sixty. The result 
was that capitalists feared to embark their means in business. 
Enterprise received a mortal blow. Demand, for labor was still 
further diminished ; and here came an additional cause of misery. 
By this uncertainty all far-reaching undertakings were killed. 
The business of France dwindled into a mere living from hand 
1 Von Sybel, History of the French Revolution, I, 281, 283. 



PArKK iMOXEV IN FKANCE 417 

to moutli. . . . Sa3s the most hrilliant of apologists for French 
revolutionary statesmanship, "Commerce was dead; betting took 
its place." 

******** 

But these evils, though very great, were small compared to 
those far more deep-seated signs of disease which now showed 
themselves throughout the country. The first of these was the 
olditeration of thrift in the minds of the French people. The 
French are naturally a thrifty people ; but, with such masses of 
money and with such un/3ertainty as to its future value, the 
ordinary motives for saving and care diminished, and a loose 
luxury spread throughout the country. A still worse outgrowth 
of this feeling was the increase of speculation and gambling. 
With the plethora of paper currency in 1791 appeared the first 
evidences of that cancerous disease which always follows large 
issues of irredeemable currency, — a disease more permanently 
injurious to a nation than war, pestilence, or famine. At the 
great metropolitan centers grew a luxurious, speculative, stock- 
gambling body, which, like a malignant tumor, absorbed into 
itself the strength of the nation, and sent out its cancerous 
libers to the remotest hamlets. At these city centers abun- 
dant wealth was piled up. In the countr}^ at large there grew 
dislike of steady labor and contempt for moderate gains and 
simple living. 

******** 

In the cities now arose a luxur}- and license which is a 
greater evil even than the plundering which ministers to it. 
In the country the gambling spirit spread more and more. Says 
the same thoughtful historian whom I have, already quoted, 
'' What a prospect for a country when its rural population was 
changed into a great band of gamblers ! " 

Nor was this reckless and corrupt spirit confined to business 
men ; it began to break out in ofhcial circles, and public men who 
a few years before had been pure in motive and above all prob- 
ability of taint, became luxuiious, leckless, cynical, and finally 
corrupt. Mirabeau himself, who, not many months before, had 
risked imprisonment and even death to establish constitutional 



418 SELECTED KEADINGS IN ECONOMICS 

government, was now — at this very time — secretly receiving 
heavy bribes : when, at the downfall of the monarchy a few 
years later, the famous iron chest of the Tuileries was opened, 
there were found - evidences that, in this carnival of inflation 
and corruption, Mirabeau himself had been a regularly paid, 
servant of the court. The artful plundering of the people at 
large was bad enough, but worse still was this growing cor- 
ruption in official and legislative circles. Out of the speculat- 
ing and gambling of the inflation period grew luxury, and out 
of this grew corruption. It grew as naturally as a fungus on a 
muck heap. It was first felt in business operations, but soon 
began to be seen in the legislative body and in journalism. 
Mirabeau was by no mean the only example. 

******** 

Yet even a more openly disgraceful result of this paper 
money was to come, and this was the decay of any true sense 
of national honor or good faith. The patriotism Avhich the fear 
of the absolute monarchy, the machinations of a court party, 
the menaces of the army, and the threats of all monarchical 
Europe had been unable to shake, was gradually disintegrated 
by this same stockjobbing, speculative habit fostered b}^ the 
new currency. At the outset, in the discussions preliminary 
to the first issue of paper money, Mirabeau and others who had 
favored it had insisted that patriotism, as well as an enlightened 
self-interest, would lead the people to keep up the value of paper 
money. The very opposite of this was now found to be the 
case. There now appeared, as another outgrowth of this dis- 
ease, what has always been seen under similar circumstances. 
It is a result of previous evils and a cause of future evils. 
This outgrowth was the creation of a great debtor class in the 
nation, directly interested in the depreciation of the currency 
in which their debts were to be paid. The nucleus of this 
debtor class was formed by those who had purchased the Church 
lands from the government. Only small payments down had 
been required, and the remainder was to be paid in small in- 
stallments spread over much time : an indebtedness had thus 
been created, by a large number of people, to the amount of 



PAPER MONEY IN FKANCK 419 

hundreds of millions. This large body of debtors, of course, 
soon saw that their interest was to depreciate the currency in 
which their debts were to be paid ; and soon they were joined 
by a far more influential class, — by that class whose specu- 
lative tendencies had been stimulated by the abundance of 
paper money, and who had gone laigely into debt, looking for 
a rise in nominal values. Soon demagogues of the viler sort in 
the political clubs began to pander to this debtor class ; soon 
important members of this debtor class were to be found intrigu- 
ing in the Assembly, — often on the seats of the Assembly and 
in places of public trust. Before long the debtor class became 
a powerful body, extending through all ranks of society. From 
the stock gambler who sat in the Assembly to the small land 
speculator in the rural districts ; from the sleek inventor of 
canards on the Paris Exchange to the lying stockjobber in the 
market town, all pressed vigorously for new issues of paper ; 
all were able, apparently, to demonstrate to the people that in 
new issues of paper lay the only chance for national prosperity. 
This great debtor class, relying on the multitude who could 
be approached by superficial arguments, soon gained control. 
Strange as it may seem, to those who have not watched the 
same causes at work at a previous period in France, and at 
various periods in other countries, while every issue of paper 
money really made matters worse, a superstition steadily gained 
ground among the people at large that, if only enough paper 
money were issued and more cunningly handled, the poor would 
be made rich. Henceforth all opposition was futile. In Decem- 
ber, 1791, a report was made in the Assembly in favor of a fourth 
great issue of three hundred millions more of paper money. 

On December 17, 1791, a new issue was ordered of three 
hundred millions more, making in all twenty-one hundred mil- 
lions authorized. Coupled with this was the declaration that the 
total amount of circulation should never reach more than six- 
teen hundred millions. What sucli limitations were worth may 
be judged from the fact that not only had the declaration made 
hardly a year before, limiting the amount in circulation to twelve 



420 SELECTED READINGS IN ECONOMICS 

hundred millions, been violated, but the declaration, made hardly 
a month before, in which the Assembly had as solemnly limited 
the amount of circulation to fourteen hundred millions, had also 
been repudiated. The evils which we have already seen arising 
from the earlier issues were now aggravated. 

The result was that on April 30, 1792, came the fifth great 
issue of paper money, amounting to three hundred millions ; 
and at about the same time Cambon sneered ominously at pub- 
lic creditors as " rich people, old financiers, and bankers." Soon 
payment was suspended on dues to public creditors for all 
amounts exceeding ten thousand francs. 

This was hailed by many as a measure in the interests of the 
poorer classes of people, but the result was that it injured them 
most of all. Henceforward, until the end of this history, capi- 
tal was taken from labor and locked up in all the ways that 
financial ingenuity could devise. All that saved thousands of 
laborers in France from starvation was that they were drafted 
off into the army and sent to be killed on foreign battlefields. 

In February, 1792, assignats were over thirty per cent below 
par. On the last day of July, 1792, came another brilliant 
report from Fouquet, showing that the total amount already 
issued was about twenty-four hundred millions, but claiming 
that the national lands were worth a little more than this sum. 
Though it was easy for any shrewd mind to find out the fallacy 
of this, a decree was passed issuing three hundred millions more. 
By this the prices of everything were again enhanced save one 
thing, and that one thing was labor. Strange as it may at first 
appear, while all products had been raised enormously in price 
by the depreciation of the currency, the stoppage of so many 
manufactories, and the withdrawal of capital, caused wages in 
the summer of 1792, after all the inflation, to be as small as 
they had been four years before, — namely, fifteen sous per day. 
No more striking example can be seen of the truth uttered by 
Daniel Webster, that " of all the contrivances for cheating the 
laboring class of mankind, none has been more effectual than 
that which deludes them with paper money." 



PAPER MONEY IN EKANCE 421 

Issue after issue followed at intervals of a few months until 
on December 14, 1792, we have an official statement to the 
effect that thirty-four hundred millions had been put forth, of 
which six hundred millions had been burned, leaving in circu- 
lation twenty-eight hundred millions. When it is remembered 
that there was little business to do, and that the purchasing 
power of the franc, when judged by the staple products of the 
country, was about equal to half the present purchasing power 
of our own dollar, it will be seen into what evils France had 
drifted. As this mania for paper ran its course, even the sous, 
obtained by melting down the church bells, appear to have been 
driven out of circulation ; parchment money from twenty sous 
to five was issued, and at last bills of one sou, and even of half 
a sou, were put in circulation. 

But now another source of wealth opens to the nation. There 
comes a confiscation of the large estates of nobles and landed 
proprietors who had fled the country. An estimate in 1793 
makes the value of these estates three billion francs. As a con- 
sequence the issues of paper money were continued in increased 
amounts, on the old theory that they were guaranteed by the 
solemn pledge of these lands belonging to the state. Early in 
1793 the consequences of these overissues began to be more 
painfully evident to the people at large. Articles of common 
consumption became enormously dear, and the price was con- 
stantly rising. . . . 

The washerwomen of Paris, finding soap so dear that they 
could scarcely purchase it, insisted that all the merchants who 
were endeavoring to save something of their little property by 
refusing to sell their goods for the worthless currency with 
which France was flooded, should be punished with death ; the 
women of the markets, and the hangers-on of the Jacobin Club, 
called loudly for a law "to equalize the value of paper money 
and silver coin." It was also demanded that a tax be laid 
especially on the rich, to the amount of four hundred million 
francs, to buy bread ; and the National Convention, which had 
now become the legislative body of the French Republic, ordered 
that such a tax be levied. Marat declared loudly that the people. 



422 SELECTED KEADINUS IN ECONOMICS 

by hanging a few shopkeepers and plundering their stores, 
could easily remove the trouble. The result was, that on the 
28th of February, 1793, at eight o'clock in the evening, a mob 
of men and women in disguise began plundering the stores and 
shops of Paris. At first they demanded only bread ; soon they 
insisted on coffee and rice and sugar ; at last they seized every- 
thing on which they could lay their hands, — cloth, clothing, 
groceries, and luxuries of every kind. Two hundred shops and 
stores were plundered. This was endured for six hours, and 
finally order was restored only by a grant of seven million 
francs to buy off the mob. The new political economy was 
beginning to bear its fruits. One of its minor growths appeared 
at the City Hall of Paris, where, in response to the complaints 
of the plundered merchants, Roux declared, in the midst of 
great applause, that " the shopkeepers were only giving back 
to the people what they had hitherto robbed them of." 

This mob was thus bought off, but now came the most mon- 
strous of all financial outgrowths of paper money, and j'-et it 
was an outgrowth perfectly logical. Maximum laws were passed, 
— laws making the sales of goods compulsory, and fixing their 
price in paper money. 

The first result of the maximum was that every means was 
taken to evade the fixed price imposed ; the farmers brought 
in as little produce as they possibly could. This caused scarcity, 
and the people of the large cities were put on an allowance. 
Tickets were issued authorizing the bearer to obtain at the max- 
imum prices a certain amount of bread, or sugar, or soap, or 
wood, or coal, to cover immediate necessities. 

It may be said that these measures were the result of the war 
then going on. Nothing could be more baseless than such an 
objection. The war was generally successful. It was pushed 
mainly upon foreign soil. Numerous contributions were levied 
upon the subjugated countries to support the French armies. 
The war was one of those of which the loss, falling apparently 
upon future generations, stimulates, in a sad way, trade and 
production in the generation in being. The main cause of these 



PAPEK MONEY IX FRANCE 423 

evils was the old false system of confiscating the property of an 
entire nation ; keeping all values in fluctuation ; discouraging 
all enterprise ; paralyzing all energy ; undermining sober habits ; 
obliterating thrift ; promoting extravagance and wild riot by 
the issue of an irredeemable currency. 

It has also been argued that the assignats sank in value be- 
cause they were not well secured, — that securing them on gov- 
ernment real estate was as futile as if the United States were 
to secure notes on its real estate in distant territories. This 
objection is utterly fallacious. The government lands of our 
own country are remote from the centers of capital, and difficult 
to examine : the French national real estate was near those 
centers — even in them — and easy to examine. Our national 
real estate is unimproved and unproductive: theirs was im- 
proved and productive ; the average productiveness of that in 
market was quite five per cent in ordinary times. 

It has also been objected that the attempt to secure the assig- 
nats on government real estate failed because of the general 
want of confidence in the title derived by the purchasers from 
the new government. Every thorough student of that period 
must know that this is a misleading statement. Everything 
shows that the French people generally had the most unwaver- 
ing confidence in the stability of the new government during 
the greater part of the Revolution. . . . 

On April 11, 1793, a law was passed to meet the case of 
those who bought specie with paper. Nothing could be more 
natural than such purchases. Husbands who wished to make 
provision for their wives, fathers who wished to make provision 
for their children, desired to accumulate something of acknowl- 
edged value, and enormous prices in paper were paid for gold. 
The new law forbade the sale or exchange of specie for more 
tlian its nominal value in paper, with a penalty of six years' 
imprisonment in irons. 

It will doubtless astonish many to learn that, in spite of these 
evident results of too much currency, the old cry of a " scarcity 
of circulating medium " was not stilled ; it api)eared not long 
after each issue, no matter how large, and reappeared now. But 



424 SELECTED READINGS IN ECONOMICS 

eveiy thoughtful student of financial history knows that this 
cry always comes after such issues — nay, that it must come — 
because in obedience to a natural law there is a scarcity, or 
rather iyisufficienci/, of curi-ency just as soon as prices become 
adjusted to the new volume, and there comes some little revival 
of business with the usual increase of credit. 

The cry of " insufficient amount of circulating medium " was 
again raised. The needs of the government were pressing, and 
Avithin a month after the passage of the fearful penal laws made 
necessary by the old issues, twelve hundred millions more were 
sent forth. 

Month after month, year after year, new issues went on. 
Meanwhile everything possible was done to keep up the value 
of paper. In obedience to those who believed with the market 
women of Paris, as stated in their famous petition, that "laws 
should be passed making paper as good as gold," Couthon, 
on August 1, 1793, proposed and carried a law punishing any 
person who should sell assignats at less than their nominal 
value with imprisonment for twenty years in chains. Two years 
later Couthon carried a law making investments in foreign 
countries by Frenchmen punishable with death ; and to make 
this series of measures complete, to keep up paper at all 
hazards, on August 15, 1793, the national debt was virtually 
repudiated. 

But to the surprise of the great majority of the people in 
France, after the momentary spasm of fear had passed, the value 
of the assignats was found not to have been increased by these 
measures ; on the contrary, they persisted in obeying the natural 
laws of finance, and as new issues increased, their value decreased 
in a constant ratio. . . . The issues of paper money continued. 
Toward the end of 1794 seven thousand million assignats were 
in circulation. By the end of May, 1795, the circulation was 
increased to ten thousand millions ; at the end of July, fourteen 
thousand millions ; and the value of one hundred francs in paper 
fell steadily, first to four francs in gold, then to three, then to 
two and a half. . . . 



PAPER MONEY IN FRANCE 42^) 

But even this could not stop the madness of inflation. New 
issues continued, until <at the beginning' of 179G over forty-five 
thousand million francs liad been issued, of which over thirty- 
six thousand millions were in actual circulation. 

It is very interesting to note, in the midst of all this, the 
steady action of another simple law in finance. The govern- 
ment, with its prisons and its guillotines, with its laws inflict- 
ing twenty years' imprisonment in chains upon the buj^ers of 
gold, and death upon investors in foreign securities, was utterly 
powerless against this law. The louis d'or stood in the market 
as a monitor, noting each day, with unerring fidelity, the decline 
in value of the assignat ; a monitor not to be bribed, not to be 
scared. As well might the National Convention try to bribe, or 
scare awa}', the polarity of the mariner's compass. On August 1, 
1795, the gold louis of 25 francs was worth 920 francs ; on Sep- 
tember 1, 1200 francs ; on November 1, 2600 francs ; on Decem- 
ber 1, 3050 francs. In February, 1796, it was worth in market 
7200 francs, or one franc in gold was worth 288 francs in paper 
money. Prices of all commodities went up in proportion. 

The writings of the period give curious details of these prices. 
Thibaudeau, in his "Memoirs," speaks of sugar as 500 francs 
a pound, soap, 230 francs, candles, 140 francs. INIercier, in his 
lifelike pictures of the French metropolis at that period, men- 
tions 600 francs as carriage hire for a single drive, and 6000 
francs for an entire day. Ever3'thing was inflated in about the 
same proportion, except the wages of labor : as manufactories 
closed, wages had fallen, until all that kept them up at all was 
the fact that so many laborers were drafted off into the army. 
From this state of things came grievous wrong and gross fraud. 
Men who had foreseen these results fully, and had gone into 
debt, were of course jubilant. He who in 1790 had borrowed 
10,000 francs could pay his debts in 1796 for about 35 francs. 
Laws were made to meet these abuses. As far back as 1794 a 
plan was devised for publishing oflicial " tables of depreciation" 
to be used in making equitable settlements of debts, but all such 
machinery j)roved futile. On the 18th of May, 1796, a young 
man complained to the National Convention that his elder 



-=:»=»- 



426 SELECTED READINGS 1^' E(JUN0MI()8 

brother, who had been actmg as administrator of his deceased 
father's estate, had paid the heirs in assignats, and that he had 
received scarcely one three-hundredth part of the real value of 
his share.^ To meet cases like this, a law was passed establish- 
ing a '•' scale of proportion." Taking as a standard the value of 
the assignat when there were two billions in circulation, this 
law declared that, in the payment of debts, one quarter should 
be added to the amount originally borrowed for every five hun- 
dred millions added to the circulation. In obedience to this 
law a man who borrowed two thousand francs when there were 
two billions in circulation would have to pay his creditors 
twenty-five hundred francs when half a billion more was added 
to -the currency, and over thirty thousand francs before the 
emissions of paper reached their final amount. This brought 
new evils, worse, if possible, than the old. 

******** 

While this system was thus running on, a new government 
had been established. In October, 1795, came into power the 
" Directory." It found the country utterly impoverished, and 
its only resource at first was to print more paper money, and to 
issue it even while wet from the press. 

The next attempt of the Directory was to secure a forced 
loan of six hundred million francs from the wealthier classes ; 
but this was found fruitless. Next a national bank was pro- 
posed ; but capitalists were loath to embark in banking, while 
the howls of the mob against all who had anything especially to 
do with money resounded in every city. At last the Directory 
bethought themselves of another expedient. It was by no means 
new. It was fully tried on our own continent twice before that 
time, and once since, — first, in our colonial period ; next, dur- 
ing our Confederation ; last, by the recent " Southern Confed- 
eracy," — and here, as elsewhere, always in vain. But experience 
yielded to theory, plain business sense to financial metaphysics. 
It was determined to issue a new paper which should be "fully_ 
secured " and " as good as gold." 

1 For a striking similar case in our own country, see Sumner, History o^ 
American Currency, p. 47. 



PAPER MONEY 1:N FKAXCE 427 

On February 19, 1796, the copper plates of the assignats 
were broken up, and it was decreed that no more assignats be 
issued ; instead of them, it was decreed that a new paper money, 
" fully secured, and as good as gold," be issued, under the name 
of " mandats." In order that these notes should be " fully 
secured," choice public real estate was set apart to an amount 
fully equal to the nominal value of the issue, and any one pos- 
sessing any quantity of the mandats ccnild at once take posses- 
sion of government lands to their full face value, — the price of 
the lands to be determined according to their actual rental, and 
without the formalities and delays previously established in 
regard to the purchase of lands with the assignats. In order to 
make the mandats " as good as gold," it was planned by forced 
loans and other means to reduce the quantit}- of assignats in 
circulation so that the value of each assignat should be raised 
to one thirtieth of the value of gold, then to make mandats 
legal tender, and to substitute them for assignats at the rate of 
one for thirty. Never were great expectations more cruelly dis- 
appointed. Even before they could be issued from the press, 
the mandats fell to thirty per cent of their nominal value ; from 
this they speedily fell to fifteen per cent, and soon after to five 
per cent. This plan failed, -^ just as it failed in New England 
in 1737 ; just as it failed under our own Confederation in 1781; 
just as it failed under the " Southern Confederacy." 

To sustain this new currency the government resorted to 
every method that ingenuity could devise. Pamphlets were pub- 
lished explaining their advantages to people of every capacity. 
Never was more skillful pufling of a financial scheme. A pam- 
phlet, signed " Marchant," and dedicated to " People of Good 
Faith " was widely circulated. In this Marchant took pains to 
show the great advantage of the mandats as compared with the 
assignats : how land could be more easily acquired with them 
than with assignats; how their security was better; how they 
could not by any possibility sink in value as the assignats had 
done. Even before the pamphlet was dry from the press, the 
depreciation of mandats had refuted his entire argument. Then, 
too, we have at work again the old su])erstition that there is 



-L 



428 SELECTED HEADINGS IN ECONOMICS 

some way of keeping up the value of paper money other than 
by having gold ready to redeem as much of it as may be pre- 
sented. The old plan of penal measures is again pressed. Monot 
leads; off by proposing penalties against those who shall speak 
publicly against the mandats. Talot thinks the penalties ought 
to be made especially severe ; and finally it is enacted that any 
persons "who by their discourse or writing shall decry the man- 
dats shall be condemned to a fine of not less than one thousand 
livres, or more than ten thousand ; and in case of a repetition 
of the offense, to four years in irons." It was also decreed that 
those who refuse to receive the mandats be fined the first time 
the exact sum which they refuse ; the second time, ten times 
as much ; and the third time, be punished with two years in 
prison. But here, too, came in the action of those natural laws 
which are alike inexorable in all countries. This attempt proved 
futile in France, just as it had proved futile, less than twenty 
years before, in America. No enactments could stop the down- 
ward tendency of this new paper, " fully secured," " as good 
as gold " : the laws that finally govern finance are not made in 
conventions or congresses. 

On July 16, 1796, the great blow was struck. It was decreed 
that all paper, mandats and assignats, should be taken at its real 
value, and that bargains might be made in whatever currency 
the people chose. The real value of the mandats at this time 
had sunk to about five per cent of their nominal value. 

The reign of paper money in France was over. The twenty- 
five hundred million mandats went into the common heap of 
refuse with the previous thirty-six billion assignats. The whole 
vast issue was repudiated. The collapse had come at last ; the 
whole nation was plunged into financial distress and debauchery 
from one end to the other. 

But when all was over with paper money, specie began to re- 
appear, — at first in sufficient sums to do the small amount of 
business which remained after the collapse. Then, as the busi- 
ness demand increased, the amount of specie flowed in from the 
world at large to meet it, and the nation gradually recovered from 
that long paper-money debauch. 



PAPER MONEY IN FRANCE 429 

Thibaudeau, a very thoughtful observer, tells us in liis 
"Memoirs" that great fears were felt as to a want of circulating 
medium between the time when paper should go out and coin 
should come in; but that no such want was ever felt — that 
coin came in as if by magic — that the nation rapidly recovered 
from its paper-money debauch, and within a year business entered 

a new current of prosperity. 

* * * * # * * *' 

I have now presented this history in its chronological order, 
— the order of events: let me, in conclusion, sum it up in its 
losfical order, — the order of causes and effects. 

And, first, in the economic development. From the first care- 
ful issues of paper money, irredeemable but moderate, we saw, 
as an immediate result, apparent improvement and activity in 
business. Then arose the clamor for more paper money. At first 
new issues were made with great difficulty ; but, the dike once 
broken, the current of irredeemable currency poured through ; 
and, the breach thus enlarging, this currency was soon swollen 
beyond control. It was urged on by speculators for a rise in 
values ; by a thoughtless mob, who thought that a nation, by its 
simple fiat, could stamp real value upon a valueless object: as 
a consequence, a great debtor class grew naturally and rapidly, 
and this class gave its influence to depreciate more and more the 
currency in which its debts were to be paid. All the energy of 
the government was devoted to grinding out still more paper ; 
commerce was at first stimulated by the difference in exchange ; 
but this cause soon ceased to operate, and commerce, having been 
stimulated unhealthfully, wasted away. 

Manufactures at first received a great impulse ; but, erelong, 
this overproduction and overstimulus proved as fatal to them as 
to commerce. From time to time there was a revival of hope by 
an apparent revival of business ; but this revival of business 
was at last seen to be simply caused by the desire of the more 
farseeing and cunning to exchange paper money for objects of 
permanent value. As to the people at large, the classes living 
on fixed incomes or salaries felt the pressure first, as soon as the 
purchasing power of their fixed incomes was reduced. Soon the 
great class living on wages felt it even more sadly. 



430 SELECTED READINGS IN ECONOMICS 

Prices of the necessities of life increased ; merchants were 
obliged to increase them, not only to cover depreciation of their 
merchandise, bat also to cover their risk of loss from fluctuation ; 
while the prices of products thus rose, wages, which had gone 
up at first under the general stimulus, fell. Under the univer- 
sal doubt and discouragement commerce or manufactures were 
checked or destroyed. As a consequence, the demand for labor 
was stopped ; laboring men were thrown out of employment, and 
under the operation of the simplest law of supply and demand, 
the price of labor — the daily wages of the laboring class — went 
down until, at a time when prices of food, clothing, and various 
articles of consumption were enormous, wages were nearly as low 
as at the time preceding the first issue of irredeemable currency. 

The mercantile classes at first thought themselves exempt 
from the general misfortune. They were delighted at the ap- 
parent advance in the value of the goods on their shelves. But 
they soon found that, as they increased prices to cover the infla- 
tion of currency and the risk from fluctuation and uncertainty, 
purchasers were fewer, purchases less, and payments less sure ; 
a feeling of insecurity spread throughout the country ; enter- 
prise was deadened and general stagnation followed. 

New issues of paper were clamored for as a new dram is called 
for by a drunkard. The new issues only increased the evil ; 
capitalists were all the more reluctant to embark their money on 
such a sea of doubt. Workmen- of all sorts Avere more and more 
thrown out of employment. Issue after issue of currency came ; 
but no relief save a momentary stimulus, which aggravated the 
disease. The most ingenious evasions of natural laws in finance 
which the most subtle theorists could contrive were tried, — all 
in vain ; the most brilliant substitutes for those laws were tried ; 
self-regulating schemes, " intercon verting" schemes, — all equally 
vain. All thoughtful men had lost confidence. All men were 
waiting ; stagnation became worse and worse. At last came the 
collapse, and then a return by a fearful shock to a state of things 
which presented something like certainty of remuneration to 
capital and labor. Then, and not until then, came the beginning 
of a new era of prosperity. 



CHAPTER XVI 

THE REGULATION OF A BANK-NOTE CURRENCY ^ 
1. Circulation secured by Bonds 

Whatever impedes the ability of a bank to furnish its currency, 
whether this currency take the form of notes or of deposits, must 
necessarily hinder it ii> the performance of its legitimate func- 
tions. As will be seen later the assessment of a tax upon the 
currency of a bank will increase the cost to the bank of furnish- 
ing its loans to the community. That is to say, so far as it re- 
sults in a rise in the rate of interest, it means that the tax has 
been shifted by the bank to the borrower. From the side of the 
borrower it is clear that anything which inteiferes with the 
ability of the bank to make liim a loan, and thus raises the rate 
of discount, is injniious to him. It is clear, then, that in the 
interest of the whole community the issue of bank currency 
should be as unrestricted as is consistent with safety. 

In the United States the choice at present is supposed to lie 
between a bond-secured issue (bonds or securities of some sort 
being pledged for the redemption of the circulation) and a sys- 
tem in which the notes, like the deposits, are secured only by 
the general assets of the bank. Before considering, however, 
the bond-secured type of circulation as such, one point having 
special application to the banking system of the United States 
must be considered. The bonds at present required as security 
for circulation are national bonds. The people of the United 
States have become accustomed to the security of bank notes 
based upon the deposit with the government of national bonds. 
For thirty-five years this has furnished an absolutely safe bank 

1 By J. Laurence Laujihlin. IJeprinted, by permission of the author and of 
II. II. Hanna, from tiie Report of the Monetary Commission of the Indianapolis 
Convention [Indianapolis, 1000]. 

4.31 



432 SELECTED READINGS IN ECONOMICS 

circulation. There is good reason why the people should have 
come to regard this system as highly satisfactory, and why there 
should be a strong belief that no other kind of security would 
be acceptable. 

It is well understood, however, to be the traditional policy of 
the United States to pay off its bonded indebtedness. Since the 
close of the Civil War the reduction of the debt had gone on in 
a way to surprise the debt-burdened countries of Europe. Two 
thirds of the debt existing in 1865 has been paid off, and the 
amount of bonds now available for national bank circulation is 
not large. If we should return to the policy of the past and 
begin the payment of our national debt again, it is evident 
that United States bonds could not be used to provide a per- 
manent and increasing bank circulation. Certainly, we may not 
seriously discuss the possibility that a debt of the United States 
would be purposely contracted or maintained merely in order 
that bonds might be provided with which to secure the notes 
of national banks. 

Even if sufficient amounts of United States bonds were pro- 
vided in the future, or if other kinds of bonds were deemed 
satisfactory, there would still be serious objections to the plan 
of a circulation secured by bonds. 

First, any provision which obstructs the easy flow of loans 
from banks to customers in the particular form in which they 
wish to take their loans is a burden to the community. It 
works in much the same way as an increased cost of agricultural 
implements to farmers, who can accomplish results only at an 
increased cost, whether their tools cost them more, or whether 
their loans cost them more. Any means by which the notes are 
less obstructed will facilitate loans, and better serve the com- 
munity which is dependent on notes. 

To communities where the supply of loanable capital is in- 
adequate to the demands, and where the rate of interest is cor- 
respondingly high, the system of bond security as a basis for 
note issue is especially disadvantageous for another reason. It 
deprives that community of a large amount of capital which 
it would otherwise have, in that it requires the banks in that 



liEGULATlOX OF A BANK-NOTE (JURRENCY 433 

community to loan elsewhere at a low rate of interest (in the 
form of investments in bonds) large amounts which would other- 
wise be loaned to borrowers in the community in question. An 
illustration may make this clearer. The present capital of the 
national banks of Nebraska, Kansas, Alabama, and 'J'exas is 
about •'^45,000,000 ; the deposits in those states are, roughly, 
(j!75,000,000. If tlie banks of these states were to issue notes 
under the present system to the amount of •'§'36,000,000 (80 per 
cent of their capital) their accounts would stand somewhat 
as follows : 

Circulation based on Present Bond Requirement 

Resoukcks Liahilitiks 

Loans to comnmuity . . . .«!8 1.200,0(10 Capital •S4.>,000,000 

United States b^ndsi . . . 46,800,000 Surplus and undivided 

Reserve (cash and on de- profits 12,000,000 

posit) 40,000,000 Circulating notes ;](;,000,000 

Deposits 75,000,000 

§108,000,000 ^8,000,000 

If, however, the banks were not required to invest in bonds, 
they could loan to local borrowers not only the $81,200,000 
possible under the present law, but also the •f!46, 800,000 now 
required to be invested in bonds, leaving the account standing 
as follows : 

Circulation based on Commercial Assets 

RkSOIKCES LlAItlLITIES 

Loans to community . . 8128,000,0002 Capital 845,000,000 

Reserve (cash and on Surplus and undivided 

deposit) 40,000,000 profits 12.000,000 

Circulating notes 36,000,000 

Deposits 75,000.000 

§168,000,000 §168^000,000 

This of itself would be objection enough to the system from 
the standpoint of our Western and Southern States ; but when 

1820,000,000 4's of 1907 at 110 ; and 820,000,000 4's of 1925 at 124. 
2 The sum of the loans and the cost of the bonds under the bond-deposit 
requirement. 



434 SELECTED READINGS IN" ECONOMICS 

to this hardship that capital is taken away from their local bor- 
rowers and invested elsewhere in bonds is added the further 
disability which has been mentioned — that this outside invest- 
ment must be at an exceedingly low rate of interest — it seems 
inexplicable that the system should have been permitted to 
exist as long as it has. It needs no argument to show that if 
one condition precedent to the establishment of a bank of issue 
in such a locality is that a greater or less amount of capital shall 
be loaned elsewhere at a rate of interest much lower than the 
local rate, the loss thus incurred will necessarily be made up by 
a higher rate of interest upon the capital which remains to be 
loaned at home. 

A system of bond-deposit security will be a rigid system. 
It cannot respond to sudden needs. The relation of the price 
of bonds to the market rate of interest produces great diffi- 
culties in regard to the probable issue of bank-note circulation 
when it is needed. 

It is well understood that changes may take place in the 
value of bonds due to changes in the credit of the government 
or to changes in the normal rate of interest, entirely outside of 
the control of the banks. As elsewhere shown, the profit of 
a bank on its circulation is diminished as the price of the 
deposited bonds increases, that is to say, as the rate of interest 
received on the bonds falls below the commercial rate. For this 
reason changes in the price of bonds may have a direct bearing 
upon the profit of circulation, and hence upon the volume of 
the notes which the banks will thereby keep outstanding. It 
may, therefore, be laid down as an undisputed fact that a system 
of bond-secured circulation is practically inconsistent with the 
automatic adjustment of the quantity of notes to the demands 
of borrowers and the needs of trade. When the demand for 
loans is great, there is little profit to be made in putting out 
notes ; that is, when the demand is urgent, the supply is not 
forthcoming. 

Also, an increase in the commercial rate of interest will lessen 
the relative profitableness of issuing notes secured by bonds 
paying a low and fixed rate of interest. At any given time, with 



REGULATION OF A BANK-NOTE CURRENCY 435 

bonds at a definite price, the existing system makes the issue of 
notes profitable in those sections like New England, for exam- 
ple, where there is already an abundance of both currency and 
capital accompanied by low rates of interest, and unprofitable 
in those sections such as the West and South, where rates of 
interest are high and a real demand for more currency and 
capital exists.^ 

As already explained, the bonds are high-priced and bear a 
low rate of interest ; and yet in times of financial stringency the 
rate of discount is sure to be high, and borroweis are in great 
need of loans. As against buying bonds bearing a low rate of 
interest in order to issue notes, there is the opportunity of loan- 
ing such funds directly at the high market rate of discount. 
The situation, therefore, puts a premium upon the direct use of 
banking capital, as against the method of investment which 
leads to increasing the bank-note circula^tion. In those com- 
munities where bank notes are essential to making discounts 
this is a serious obstacle. In short, at the time or place of 
pressing demand under the existing system the supply of notes 
is not forthcoming. 

On the other hand, if the country is suffering from business 
depression, if funds are accumulating in the banks, and if the 
market rate of interest is low because there are few opportuni- 
ties of profitably employing capital, then it would not be impos- 
sible to expect the banks to use superabundant funds in buying 
bonds of a low rate of interest. Therefore, at a time when the 
demand for loans is slight and the rate of discount low, it would 
be easy for the banks to invest in bonds and thereby obtain notes. 
In short, when there is no demand, the supply is easily obtained. 
It needs no further comment, consequently, to see that such a 
system of note issues works at cross purposes with the needs 
of the public. With a deposit of bonds for security of notes, 

1 It appears, for example, that in the New England States, where the com- 
mercial rate of discount is not over 5 or 6 per cent, the national banks find 
it profitable to issue in excess of the notes on the required deposit of bonds, 
more than half the amount which they might so issue ; while in the West- 
ern and Southern States, the banks issue, in general, but little more than 
the amount of notes permitted upon their required deposit of bonds. 



4oG SELECTED EEA1)I:NX^S IX EC()NO:\II(JS 

there is no supply of notes at a time when most needed and an 
abundant supply of notes when least needed. ^ 

It should be noted that when the necessities of business 
urgently demand additional notes, even if the price of bonds 
should be such as to make the issue profitable, the delays inci- 
dent to the purchase of bonds, the taking out of circulation upon 
them, etc., would make it impossible to obtain the currency until 

1 This has been clearly illustrated by the experience of the last half dozen years. 
"From 1882 until 1889 there was a pretty steady advance in the price of gov- 
ernment bonds, the 4's of 1907 having risen from 103 in 1880 to 129 in 1889. In 
1880 and 1881, vphile these bonds v^ere selling between 103 and 112, there was soraie 
increase in the national-bank circulation ; but their price touched 120 in 1882, 
and for nine years thereafter, the bonds being high-priced, there was a steady 
decrease in the note circulation of the national banks. The financial panic of 
1890 caused a fall in the prices of government bonds, and thereby increased the 
chances of profit on the circulation of national-bank notes. As a result there 
was a net increase of $18,000,000 in their circulation in 1891, and of .$8,000,000 
in 1892. Now in these two years there was absolutely no demand for an 
increase in the circulating medium of this country ; on the contrary, the Treasury 
Department in these years was injecting arbitrarily between $25,000,000 and 
$50,000,000 of silver paper money into the currency of the country, as a 
result of the Silver Purchase Act of 1890, and gold, in consequence, was being 
exported at a rate which alarmed business men and finally precipitated the 
jDanic in 1893. 

'"During 1893 the 4's of 1907 sold down to 113, and the banks added to 
their circulation $37,000,000. During the months of June, July, and August of 
that year there was a most urgent need for an expansion of the currency ; but 
during these months the new national-bank notes did not appear. Not until 
after the panic was over and money was piling up in all the financial centers — 
a drug on the market — did the increase in the national-bank note circulation 
take place. As a result of the panic, business being depressed, the interest rate 
on prime commercial paper during 1894, 1895, and 1896 was between 3 per cent 
and 4 per cent. The money supply of the country was in excess of its needs 
and gold was exported in large amounts. The Treasui-y, embarrassed by the 
withdrawals of gold, was forced to issue bonds in order to maintain the gold 
reserve. These bond issues forced down the prices of bonds, and thus increased 
the profit which banks could make upon new circulation. Therefore, consider- 
able idle banking capital, which could be loaned barely at 3 per cent in business, 
was exchanged for government bonds and made the basis for bank notes, so 
that in 1895 and 1896 there was a net addition to the bank-note circulation of 
.$•32,000,000. Thus the national-bank note helped to embarrass the government 
by inflating the currency at a time when the government was doing its utmost 
to hinder inflation and prevent the expoi'tation of gold to Europe." — Professor 
Joseph French Johnson, in response to the interrogatories of the Monetary 
Commission. 



KEGULATIOX OF A BANK-NOTE CUKKENCV 4o7 

all need for it was practically past. Tiuler such a system, there- 
fore, banks must refuse to customers additional supplies of notes 
upon sudden demand, even though the community in such cir- 
cumstances has enlarged its currency need and an additional 
supply may, therefore, without additional strain on the bank, be 
kept in circulation. Under such circumstances, if notes are an 
essential to the borrower, rates for loans rise abnormally and 
crisis conditions are vastly intensitied. Probably the best illus- 
tration of this delay in responding to demand was seen in the 
difficulty of obtaining currency during the summer of 1893, 
when it was practically impossible to secure a sufficient supply 
of a circulating medium of any sort. The New York banks held 
on June 1, 1893, a surplus of 821,000,000 in excess of their legal 
reserve. At that time the volume of national-bank notes out- 
standing was about 8177,000,000. By the 1st of August ex- 
traordinary demands for currency had dra"wn down the reserves 
814,000,000 below the legal minimum and yet the outstanding 
notes were only about 85,000,000 more than on June 1. By 
September 1, however, when the reserves were but 81,500,000 
below the minimum, and the urgency was past and currency 
once more comparatively abundant, the notes had begun to ex- 
pand and had already reached 8199,800,000, subsequently rising 
to 8209,300,000 on November 1, notwithstanding the continued 
decrease in the demand for them. 

These considerations may be stated in three indictments of the 
system: (1) higher regular rates of interest; (2) inelasticity; 
(3) inconvenience and delay. 

The explanations here briefly given sufficiently account also 
for the extraordinary fact in the history of the national bank- 
ing system that from December, 1873, when the note circu- 
lation stood at 8341,320,256, it pretty steadily diminished to 
October, 1890, when the amount outstanding was but 8122,- 
928,084. That is, in the face of a special stress, the bank- 
note circulation proved its maladjustment to the needs of the 
public by shrinking at the time when there was more woik to 
be done. 



438 SELECTED READINGS IN ECONOMICS 

2. Circulation secured by Commercial Assets 

None of the objections previously noted are, of course, 
applicable to notes issued on the security of general commercial 
assets. It has been fully shown that a bond-secured circulation 
cannot furnish an elastic medium, expanding and contracting 
automatically. But it is quite otherwise with a currency which 
is based upon the general assets of the issuing banks. The 
volume of notes put forth under such circumstances will, like 
deposits, automatically expand in volume by being issued upon 
demand from legitimate borrowers, and automatically contract 
by being returned to the bank when the need for the currency 
is past. Under such a system any increase in the demand for 
money, and consequent higher rate of interest, adds to the 
inducement to issue notes, instead of making it less profitable as 
in the case of bond-secured currency. 

There is, moreover, no delay or inconvenience such as exists 
where bonds must be purchased and deposited with the Treas- 
urer before the notes can be issued. The assets on which the 
notes are based are the ordinary commercial paper acquired by 
the bank in the course of its regular business. The bank is 
thus always ready to increase its circulation if the public will 
use more notes, and all considerations of profit lead it to do so, 
as its power to loan will be increased in proportion as it is able 
to keep more notes in circulation. The same motives acting on 
all the banks lead to active competition, which, as explained 
elsewhere, results in the prompt redemption of all notes depos- 
ited or paid into any bank. 

The greater comparative elasticity of a system of bank cur- 
rency based on general assets over one based on deposit of 
bonds, is shown not merely by a comparison of the national- 
bank system with foreign systems based on general assets, but 
even more sharply by an examination of the results of the two 
systems when existing side by side in New York, prior to 1860. 
In that state the so-called " Safety Fund Banks " were free to 
issue notes upon their general commercial assets ; while the 
" free banks " were obliged to deposit with state officials either 



REGULATION OK A BANK-NOTE CURRENCY 439 

United States or state bonds, or bonds and mortgages. Because 
the rate of interest which these investments bore was not very 
much less than the commercial rate, the inelasticity of tlie bond- 
secured currency in New York was not as great as that of the 
national banking system. Yet, as compared with the circula- 
tion issued by the safety-fund banks upon commercial assets, 
it was so rigid as to make its inferiority in this regard perfectly 
manifest. 

Another result of a system of bank currency based on gen- 
eral assets — indeed a corollary of what has just been stated — 
is that each community is thereby enabled to furnish for itself 
most easily and economically just such a currency as it requires 
for the convenient transaction of its business. The rural dis- 
tricts are not forced to go to more expense in creating their cur- 
rency — notes — than are the commercial centers in creating that 
which they use — deposits. 

Then, again, where commercial paper is accepted as the basis 
for the notes the banks are not obliged to withdraw from the com- 
munity for investment in bonds a large portion of their funds. 
The local borrowers thus get the benefit of having offered to 
them the capital which a bond-secured system requires to be 
invested in bonds. For sections where notes, as distinguished 
from deposits, constitute the important part of the currency, 
this is equivalent to a large increase in the capital offered to 
borrowers, and results in a consequent lower interest. 

Considerations of elasticity, the greater facility given for 
the prompt and automatic adaptation of the supply of currency 
to varying demands, the larger opportunities afforded to every 
rural community to furnish for itself easily and economically 
the currency which it needs for the convenient transaction of its 
business, and the ability given to banks to loan more freely to 
local borrowers, thus favor the issue of bank notes upon the 
general assets of the bank as distinguished from the system of 
bond security. 

The only arguments which have been seriousl}^ opposed to 
this plan have been based on the fear tliat the security j)rovided 
by general commercial assets would not be equal to that afforded 



440 SELECTED READINGS IN ECONOMICS 

by bonds. The validity of the objection depends 'entirely upon 
the character of the assets. Of what, then, do the ordinary assets 
of banks consist, and what is their amount and character? In 
this connection it is neither necessary nor proper to consider any 
one bank apart from the others ; for, under the plan proposed in 
this report, the notes of each bank are secured not only by its 
own assets, but also, if those assets should prove insufficient, by 
such portion as might be necessary of the assets of all the other 
banks. It is, therefore, the general question of the character of 
bank assets as a whole with which we are concerned. These 
assets are the result of loans made by the banks to those carry- 
ing on the business of the country ; they represent in the main 
marketable products or commodities in the process of exchange 
and distribution. They are made by bankers whose interest it is 
to see that they are sound, inasmuch as the first loss, if any, 
must fall on the bank and its stockholders. These assets, there- 
fore, are based on and secured by the best business of the coun- 
try ; their character rests on that which is a condition precedent 
to all solvency, individual, corporate, and governmental. Should 
the time ever come, in this or any other country, when the best 
business assets were not worth on the average thirty-five cents 
on the dollar, a time will have come when government and 
municipal bonds will likewise be practically valueless. It is con- 
ceivable that a government may become bankrupt while the 
great portion of the private business of the country remains 
solvent ; indeed, this has occurred. But it is not conceivable 
that the bulk of the private business of a country can become 
worthless and the government of that country remain solvent ; 
this has never occurred. These considerations make it clear 
that, taken in the aggregate, there can be no safer security for 
bank notes than that afforded by the combined commercial 
assets of the issuing banks. No revulsion which has ever taken 
place in this or any other country of similar commercial devel- 
opment has been so serious that it would have impaired the 
value of notes secured by such assets. 

Under the plan proposed by the Commission the resources be- 
hind the notes would be much greater than is usually supposed. 



REGULATION OF A BANK-NOTE CURRENCY 441 

The present capital of all national banks is -¥631,488,095 ; and 
if notes should be issued by all of them to the amount of 80 
per cent of their unimpaired capital, the aggregate \vould be 
$505,190,476, for which the security inthe form of total assets 
would be ^4,,011,403,513,^ or a protection of nearly 8 to 1. 
But, it will be said, not all banks will issue notes to this 
limit; and this will be done mainly by the banks outside of 
reserve cities. The present capital of the 3276 banks outside of 
reserve cities (though including some cities of considerable size) 
is .*401,302,835 ; of which 80 per cent would be $321,042,268 ; 
for which the security in the form of total assets would be 
$1,956,216,503, or 86.10 to every §1 of notes. 

There can be no question, then, that in the aggregate the 
security behind the notes would be ample. It is for occasional 
banks where such would not be the case that the Guaranty 
Fund is provided. And, finally, the power of the comptroller 
to levy assessments as they may be needed to keep the fund 
good for this pur^jose insures that these occasional failures will 
cause no loss to the note holders. 

If it should be thought that the security of a prior lien upon 
all the resources of a bank (instead of a part specifically invested 
in bonds) is insufficient for the protection of the note liability, 
attention is called to the fact that now over 90 per cent of the 
large exchanges of goods are performed by the media of exchange 
created on the basis of the deposit liability of banks ; and that 
the protection to this liability has always been the general 
resources of the bank. An enormous volume of checks, drafts, 
and bills are daily in circulation, expanding with the expansion 
of business, constantly coming home for redemption and payment, 
always regarded as a safe medium of exchange, — and this cir- 
culation is protected solely by the general assets of the banks. 
When it is noted that deposit accounts of about $2,000,000,000 
do a work of more than $50,000,000,000 (as show.n by the 

1 With a note liability of $198,920,670, the actual assets now held by all the 
national banks amount to .s3,705, 1,33,707. Should their note issues be increased 
to 8505,190.47(1. their assets would at the same time be increased by the same 
amount, makinj,' the aggregate assets behind the $505,190,476 of notes, S4;011,- 
403,513, as stated. 



442' SELECTED READINGS IN- ECONOMICS 

clearings of the United States),^ while the note circulation of the 
banks is only about ^220, 000, 000, it must be admitted that there 
is nothing novel or unsafe in basing the smaller amount upon 
the same security as that of the greater, a security to which the 
community has long been accustomed. Not only are the note 
issues in the proposed plan secured by assets of the same kind, 
but they are given a prior lien on all this vast sum of resources. 
There is no reason, therefore, why the note issue of a bank should 
not be as good as, indeed much better than, its cashier's draft. 
No greater obstacles, with some obvious limitations, should be 
put in the way of the increase in the quantity of the one than 
of the other, and as rigid requirements should be exacted for 
the redemption and payment' of the one as of the other. In this 
way notes will be used if transactions warrant their issue, and 
be presented for redemption, just the same as a cashier's check, 
immediately their work is done, thereby giving perfect elasticity. 
The people of the United States have become accustomed 
to regard government bonds as the only safe security for bank 
issues. It should be clearly understood, however, that perfect 
security to the note holder has been obtained under the system 
proposed herein in certain sections of our own country in earlier 
times and in practically all the civilized nations on the conti- 
nent of Europe to-day. It should be kept constantly in mind, 
also, that many losses, due to the inadequate security of bank- 
note issues in various parts of the country before the Civil War, 
came from a system in which the notes were secured by the 
deposit of bonds. The bonds used, however, were frequently 

1 The amount of checks and drafts annually passed through the clearing 
houses of the United States has for some years past ranged between $50,000,000,- 
000 and ^60,000,000,000. These clearings, however, represent only a portion of 
the checks actually used. There are many checks which never go through a 
clearing house at all, — being either deposited in the banks upon which they are 
drawn or, as is usual in the case of out-of-town checks, forwarded by mail for 
settlement. 

Information furnished to the- Commission by numerous banks indicates that 
the clearings represent no more than 75 or 80 per cent of the aggregate credit 
instruments actually used. So that instead of $50,000,000,000 or !|60,000,000,- 
000, .the transactions annually carried on by means of this deposit currency 
probably amount to from $65,000,000,000 to $80,000,000,000. 



regulatiu:n' of a ha^k-note curke:ncy 443 

state bonds, which by repudiation or bad legislation had depre- 
ciated or become AA'orthless. It is the unmistakable testimony 
of our history before the Civil War that the security of bonds 
did not, by any means, protect the note holder. 

Since the notes are protected not only by tlie general assets 
but by the combined guaranty of the other issuing banks in the 
system, there can be no question as to the security to the note 
holder. This point may be regarded as entirely disposed of.^ 
The onl}' question to be raised ma}-, conceivably, be as to the 
willingness of the banks to go into a system in which a com- 
bined guaranty (by the guaranty fund) is created for the safety 
of the note holder. This question will be taken up and fully 
discussed in connection with the guaranty fund and the history 
of bank insolvencies, where it will be found that the possibility 
of loss to the banks by making such a guaranty is inconsiderable. 

3. Guaranty Fund 

Where tlie business of banking is not a monopoly, but is 
thrown open to any group of persons who may wish to enter 
it, that is, under a regime of so-called free banking, there will 
probably be a few failures from time to time. Under a system 
wliere the business is concentrated in a few hands, risks are less 
and those which exist are met by larger resources. Above all, 
the best of experience and business judgment is in charge of 
affairs. There is little more likelihood of the failure of the 
strong financial institutions of the world, such as the banks of 
France or England, than there is of the failure of all, or a large 
proportion, of the banks in the national-banking system, — an 
occurrence scarcely more to be anticipated than tlie breakdown 
of the whole business community itself. This absolute security, 
obtainable by committing the business of banking to one or to 
a few large financial institutions, is sacrificed under a system of 
free banking like our present one. This is the price paid for 
freedom of opportunity to engage in the business. 

1 I'rofessor J. F. .Johnson, Annals of American Academy, March, 1808, makes 
the objection to the Commission's plan that the notes are " too good." 



444 SELECTED READINGS IN ECONOMICS 

It is easy to see why the note holder should be guaranteed 
security at the expense of the other creditors of the bank. It is 
not because of any inherent reason why notes should be pre- 
ferred to the other liabilities, but chiefly because the notes in 
order to attain their highest usefulness to society must be made 
a universal currency. Deposits, although the same in their 
nature, need not, and indeed, cannot become such a universal 
currency, since each particular check and draft rests upon proof 
of the depositor's possession of a credit to his order. Notes of 
banks of small capital would be subject to much the same limi- 
tations, unless made uniform by some mechanism which would 
secure their redemption . under any circumstances. This would 
necessitate delay and expense in making the necessary investi- 
gation as to the character of each note, and would thus seriously 
interfere with their ability to perform their proper function in 
exchange. If occasional losses are certain to occur under a sys- 
tem of free banking, some means must be found whereby the 
notes of all banks, whether failed or not, will be maintained 
upon an equality. In this way only can bank notes become a 
currency of the highest usefulness. 

A consideration of the natui"e of the bank note shows no rea- 
son on a priori grounds why its holder cannot be protected by 
the usual means of insurance against loss. The principle of 
insurance has now been applied to an immense variety of under- 
takings. Risks of all sorts are now provided against by insur- 
ance. The essential idea of the operation is the contribution 
by those who are engaged in any occupation of a small sum to 
defray losses to any of the contributors arising from a specified 
cause. This is sometimes done through the agency of a com- 
pany which makes a profit upon the transaction, although often 
directly by those whose interests are involved. In either case 
the principle would be the same if carried out by those who are 
insured against loss. And although the cost of insuring the 
notes might for convenience be paid by the banks themselves, 
the principle here again would be the same as if it were paid by 
the note holders, since it might be shifted to them by the bank, 
in the shape of higher interest, unless the increase in credit 



KEGULATION OF A BANK-NOTE CUKKENCV 445 

secured to the notes by the operation should result in an addi- 
tional profit suftlcient to compensate the bank for any extra 
expense involved. The principle of insurance can as a rule be 
applied only to those losses which are small in amount or recur 
regularly. It would be inapplicable if losses could not be esti- 
mated with some reasonable degree of certainty upon the basis 
of past experience, so that the amount to be contributed by the 
individuals concerned could be accurately gauged. Banking 
experience, however, has been comprehensive enongh to afford 
a basis for calculation. The principle of insurance has in sev- 
eral instances been actually applied to banking in the shape of 
a safety fund used to guarantee the note holder against loss. 

Probably the earliest example of a safety fund for the security 
of the note holder is found in Xew York. The act of April 2, 
1829, established upon the recommendation of Governor Van 
Buren a so-called " Bank Fund." This fund was to be created 
by an annual payment to the state by each note-issuing bank in 
the system of a tax of one half of 1 per cent of its capital stock, 
until these payments should have aggregated 3 per cent of the 
capital stock. The fund was to be invested by the state and 
was to be utilized to make good to creditors any failure of the 
assets of insolvent banks to meet the banks' obligations. When- 
ever the fund should becon-ue reduced by insolvencies, it was to 
he restored by annual contributions of one half of 1 per cent 
of the capital of the banks of the system until it should reach 
its original size. The fund was thus intended as a guaranty for 
the deposits as well as for the notes. 

The act establishing the Safety Fund was subsequently mod- 
ified in several very important particulars. Provision for the 
immediate redemption of the notes of failed banks, whenever 
the liabilities in excess of the assets of such banks should not 
amount to more than two thirds of the fund, was adopted in 
1837. The fund as thus established was first drawn upon in 
1837, after it had been in existence for eight years. Losses 
arising from several failures of minor importance were success- 
fully met from the fund and reimbursed to it from the banks' 
assets. But it was not until the years 1840-1842 that the fund 



446 



SELECTED HEADINGS IN ECONOMICS 



was really put to a test. In the meantime several of the banks 
which had been chartered in the speculative period 1835-1837, 
and which, going into business at such a critical time, had be- 
come heavily involved in speculative transactions, found them- 
selves unable to place their business upon the sound basis which 
legitimate banking demanded. The result was eleven serious 
bank failures in the years 1840-1842, which drew attention to 
some of the defects of the law and led to its amendment. In 
1842 it was provided that thereafter the fund should be used 
only for the I'edemption of the notes of failed banks (and no 
longer as a guaranty for deposits), after the liquidation of losses 
already incurred.^ 

1 In the liquidation of the eleven banks which failed in 1840-1842 and threw 
so heavy a burden on the Safety Fund, it appeared that only two (the Lafayette 
Bank and the Oswego Bank) succeeded in paying all their creditors in full with- 
out resort to the Safety Fund. The amounts collected by the receivers of the 
other banks prior to December, 1845, and the amounts paid from the fund for 
notes and for other debts of such banks, together with amounts subsequently 
realized, were as follows : 





Collec- 
tions FROM 
assets to 
December, 
1845 


Payments from Safety 

FUND 


Subse- 
quent 

COLLEC- 




In redemp- 
tion of notes 


Payment of 
other debts 


TIONS 
FROM 

ASSETS 


1. City Bank of Buffalo ... 


fl66,576 


§317,107 
113,131 
139,837 
435,540 
186,861 
163,162 
134,107 
71,896 
52,898 
725 


$16,078 
146,129 
149,241 
424,515 
78,351 
77,484 
156,257 
40,053 


$99,996 


2. Wayne County Bank 

3. Commercial Bank of New York . . 

4. Bank of Buffalo . 

5. Commercial Bank of Buffalo . . . 

6. Commercial Bank of Oswego . . . 

7. Watervliet Bank 

8. Clinton County I5ank 


56,744 
303,339 
82,837 
172,864 
80,853 
19,459 
76,019 
37,445 


7,188 

5,000 
2,392 
13.259 

3,960 
6,482 






Totals 


,'i};996,136 


,fl,615,264 


$1,088,109 


$138,277 





From this statement it appears that the collections from the assets of the Com- 
mercial Bank of New York were much more than enough to meet its notes ; 
while those from the other banks, if applied to the payment of their notes, would 
have reduced the total net payments of notes out of the Bank Fund to $651,541. 
Of this sum, however, $252,647 was represented by notes issued by the Bank of 
Buffalo and the City Bank of Buffalo in excess of the $500,000 which those 
banks were authorized to issue. 



KEGULATiON OF A HAXK-^'OTE CURRENCY 447 

These losses, however, were so great as to necessitate the 
payment of about *1,600,000 for notes and !B1,100,000 for other 
debts. As the fund at this time amounted to only about •"s'BOO,- 
000, it became necessary, in order to meet these obligations, to 
issue stock payable from future contributions of the banks to 
the fund. The amount of the fund in any case was altogether 
too small to provide insurance against losses on both notes and 
deposits, which might occur in the course of business ; while 
the failure, up to this time, to make the notes a preferred lien 
on the assets, and to impose an individual liability on the stock- 
holders, threw upon the fund a burden which it should not have 
been obliged to assume. 

In devoting the fund solely to the redemption of the notes, 
therefore, a step in the right direction was unquestionably taken. 
But it did not go far enough. J\Iore important were the pro- 
visions of the constitution of 1846 giving the holders of the 
notes of an insolvent bank a first lien upon its assets and mak- 
ing the stockholders individually liable for an amount equal to 
the stock held by them. The banks had also, in the beginnuig, 
been allowed to issue notes subject only to very loose restric- 
tions as to quantity. The result was that notes were over- 
issued in several cases, and the Safety Fund was actually called 
upon to redeem over $!250,000 of notes issued in excess of the 
maximum authorized. The safety-fund system was perfected in 
this particular b}' the act of 1843, which provided for the print- 
ing and registry of notes by the comptroller, — all note-issuing 
institutions being compelled to give up their old plates. 

As already noted, however, before these amendments were 
made, a number of serious failures had not only exhausted the 
fund, but had made heavy drafts upon future contriljutions for 
that purpose. Yet an examination of the facts developed in this 
experience makes it clear that if the Bank Fund had from the 
beginning teen applicable only to the notes (as after 1842), and 
if the notes had been originally given a first lien on the assets 
of the issuing banks (as they were after 1846), and if it had 
been made inqx)ssible for any bank to put in circulation more 
notes than were authorized by law (as it was after 1843). the 



448 SELECTED READII^GS IN ECONOMICS 

total draft upon the Bank Fund on account of these eleven 
bank failures in 1840-1842 — serious as they were — would 
have been less than 1400,000. That is to say, they would not 
have exhausted one half of the Bank Fund at that time available. 

From the renewal in 1841 of the annual payments to the 
Bank Fund (1- per cent per annum on capital), all subsequent 
contributions for twenty-five years were mortgaged to secure 
the payment of the principal and interest of the stock issued in 
1845 ^ to cover the losses already referred to, the greater part 
of which under a proper system would not have fallen on the 
Safety Fund at all. Consequently, in this period, there was 
really no security for note holders except that involved in the 
provisions limiting the circulation, making the stockholders 
liable, and giving the note holders a first lien. But even with- 
out any further guaranty, the loss to the note holders was 
slight. Of five banks which failed in the subsequent history 
of the system, one paid its notes in full without delay ; three 
others collected enough from their assets to reduce their aggre- 
gate note issues from 8508,535 to $37,057 ; while the fifth paid 
about $30,000 of its total issue of 8125,000. The net loss, 
therefore, falling on a guaranty fund in this entire period sub- 
sequent to 1842, was only 8129,499, which, for the whole 
twenty-four years, would have been considerably less than 1 
per cent of the average capital ; that is, less than one twenty- 
fourth of 1 per cent per annum.^ 

The experience of New York with a system of note issues 
based on general commercial resources — even complicated as 
it was with the speculative transactions of the years 1885-1839 
— shows that in the whole history of the system the total loss 

1 By the act of April 28, 1845, the comptroller of the state was authorized to 
issue stock on behalf of the state, redeemable from subsequent contributions 
to the Bank Fund, with which to secure funds to settle at once with the cred- 
itors of the banks which had previously failed. 

2 These five bank failures were those of the Canal Bank of Albany, in 184.8 ; 
the Lewis County Bank, in 1854 ; and the Bank of Orleans, Reciprocity Bank, 
and Yates County Bank, in 1857. The first redeemed its notes in full. The out- 
standing circulation of the Lewis County Bank at the time of its failure was 
$125,283 ; that of the other banks was : Bank of Orleans, $200,000 ; Reciprocity 
Bank, |159,577 ; Yates County Bank, |148,958. By 1866 the collections from 



KEGULATION OF A BANK-NOTE CURRENCY 449 

which would have been thrown upon the Safety Fund, if it li:ul 
been originally established in its finally perfected form, would 
have been less than $550,000, an amount which would have 
been met by an average annual assessment of less than one 
tenth of 1 per cent upon the capital. 

Other applications of the safety-iund principle to the guar- 
anty of notes in the United States were to be found in the state- 
bank systems of Ohio and Iowa, which appear to have given 
entire satisfaction. Vermont, also, in 1831 adopted a system 
quite similar to that of New York, but a few years later per- 
mitted the banks to substitute in place of contributions to the 
common insurance fund, the personal bonds of the stockholders 
of any bank to redeem its notes. 

The only banking system in which a guaranty-fund provision 
is actually incorporated at the present time is that of Canada. 
According to the terms of the banking law of 1890, the notes 
are made a first charge upon all the assets of the issuing bank, 
including the double liability of stockholders. In addition to this, 
banks are required to keep on deposifwith the Minister of Finance 
a sum equal to 5 per cent of the average amount of their notes 
outstanding during the fiscal year preceding. In case of the 
suspension of any bank, its notes outstanding draw interest at 
6 per cent from the date of suspension until the date set for their 
redemption. If such a day is not fixed by the directors of the 
bank within two months from suspension, the Minister of Finance 
is authorized to appoint a date upon and after which they will 
be redeemed from the redemption fund. Until the fund is made 
good from the assets of the failed banks, all the banks of the 
system are required to contribute in their due proportion at a 
rate not exceeding 1 per cent on their circulation each year. 

the assets by the receivers had reduced the outstanding amounts to 87508 for 
the Bank of Orleans, •'?10,744 for the Reciprocity Bank, and >!18,715 for the 
Yates County Bank. 

In his report for 1807 the Comptroller of the State of New York stated the 
then outstanding circulation of these four banks to be 8129.490. Notice was 
given that these notes would be redeemed from the surplus of the Bank Fund 
then remaining, and all that were presented were redeemed in full. Many of 
them, however, were never presented. 



450 SELECTED READINGS IN ECONOMICS 

Since the establishment of this system in 1890 but two bank 
failures have occurred. In the case of the second failure, the 
notes of the bank were redeemed by the bank itself, without re- 
course to the redemption fund. In the case of the earlier one, 
the liability at the end of two months fell upon the redemption 
fund, though even here no notes were really presented for rcT 
demption from it. No doubt, however, was felt concerning the 
goodness of the notes, and inasmuch as they drew interest at 
6 per cent from the date of suspension, they were regarded 
rather favorably as an investment, and were readily received by 
banks and others. 

The successful working of insurance against loss upon bank 
notes, as embodied in the safety-fund idea, has thus been shown 
to be possible by experience. In the instances just cited, it either 
succeeded absolutely in securing note holders against loss, or 
demonstrated its ability to do so if properly applied and supple- 
mented by adequate auxiliary measures, such as limitation of 
note issue, stockholders' liability, and a first lien on assets in 
favor of notes. 

We need not, however, depend solely upon actual experience 
in the case of banking systems which have put the principle 
specifically into operation. The theory of insurance is sufficiently 
worked out to allow a judgment as to the possibility of its appli- 
cation to any class of risks, provided only that adequate statistics 
upon which to base a judgment can be found. With the safe- 
guards and precautions which are being increasingly thrown 
about the business of banking, it is improbable that in the future 
failures of national banks would exceed those of the past. Even 
though, under the plan proposed in this report, a stimulus might 
be given to the establishment of banks in sections where business 
conditions were so unsettled as to make the danger of failure 
greater than the past average, this possibility of an increase of 
failures will unquestionably be more than offset by the general 
improvement due to the more rigid and thorough investigations 
provided for. With the discretion lodged with the comptroller, 
no bank can be started where it is not clearly shown that the 
bank is established in good faith and that the capital has been 



KEGULATii)N OF A BANK-NOTE OUKKENCY 4ol 

fully paid up. The names of the directors must be given, and 
the comptroller will be in a position to refuse his approval of any 
application where the directors are not men of good reputation. 
There will thus be no more opportunity for fraud than under the 
present system. Our past experience, therefore, offeis sufficient 
data upon which to base a judgment regarding the applicability 
of the insurance principle in the form of a safety fund to guard 
against losses to note holders under the proposed system. The 
results of an examination of this experience will be given else- 
where in the section on Insolvency of National Banks. 

The guaranty-fund provision recommended by the Commission 
may be briefly described as follows : 

Each bank must at all times maintain on deposit with the 
Division of Issue and Redemption an amount in gold equal to 
5 per cent of its outstanding circulation. This will most natu- 
rally be administered precisely as the 5 per cent redemption fund 
is now. At the start each bank will be required to put up an 
amount equal to 5 per cent of its outstanding circulation, and 
thereafter, when it takes out an additional amount of notes, it 
will be required to pay into the Treasury 5 per cent of such 
notes for its redemption fund, and another 5 per cent- for the 
guaranty fund ; and whenever it returns any of its notes for 
cancellation, or deposits lawful money for their withdrawal, 
it will receive back from the Treasury 10 per cent of the 
amount of circulation so retired, - — 5 per cent from each fund.^ 

1 The considerations wliicli led to this method of adjusting the fund were these. 
It seemed very desirable that the fund should, in the early years of the new 
system, be of sufficient size to inspire confidence in the redemption of the notes of 
every failed bank. The project to accumulate a fund by imposing an annual tax 
of I per cent, or 1 per cent, had, therefore, to be abandoned at the outset, since 
it would have left the fund small, and, po.ssibly, insufficient in the early years. 

Another favorite proposition has been to establish a fund by requiring each 
bank to contribute an amount equal to H per cent, or A per cent, of the circula- 
tion taken out, but making nojirovision for the return to the bank of any portion 
of such sum in case of the retirement of the circulation. This proposition like- 
wise had to be abandoned, for it appeared that such an arrangement would tend 
to retard the issue of currency when demanded by temporary business needs ; for 
no bank which could not expect the additional circulation thus called for to re- 
main outstanding for more than a few weeks, or at most a few months, would 
be willing to go to the expense of paying an assessment of 3 per cent outright 



452 SELECTED READINGS IK ECONOMICS 

These contributions will aggregate a large sum, which will be 
available at all times for the redemption of the notes of any in- 
dividual failed bank without the necessity of waiting until its 
assets are turned into cash. All notes of such a bank presented 
for redemption will be promptly paid from this fund, and the 
notes merely held in the Treasury as a part of the fund until 
they can be paid by the receiver from the assets of the bank. 
In the meantime they would be regarded as the investment of a 
portion of the fund. If, when the affairs of any failed bank 
were finally wound up it should appear that the total net collec- 
tions had been insufficient to redeem all its notes, the other banks 
of the system would be assessed whatever amount would be 
necessary to meet the deficiency. 

in order to get the notes. If the currency were outstanding for only two months, 
this would be equivalent to 18 per cent per annum, a rate which would make the 
issue of notes out of the question, and necessitate some makeshift such as resort 
to borrowing currency wherever it might be secured, as at present. Such a prop- 
osition therefore, if carried into effect, would have seriously hindered that proper 
adjustment of supply of currency to business needs which the Commission en- 
deavored to bring about. 

The Canadian system, in which the banks maintain throughout each year an 
amount equal to 5 per cent of the average outstanding circulation for the previous 
year, was also decided to be inapplicable, because with so many banks as there 
are in the national-banking system, and the great changes frequently taking place 
in their circulation, it would frequently happen under such a system, that a bank 
having in one year only a very small circulation, would be enabled to put out in 
the next year a very nmch larger amount of notes without increasing its contri- 
bution to the guaranty fund correspondingly. 



CHAPTER XVII 
INTERNATIONAL TRADE 

1. The Balance of Trade ^ 

The rapidity Avith which exports of American products have 
increased in recent years has served, naturally enough, to stimu- 
late discussion concerning the unprecedented balance of trade 
which now stands in " favor " of the United States. Not a few 
writers seem to believe that the extraordinary excess of exports 
over imports has made our foreign trade peculiarly profitable to 
the country, and there has been a marked revival of some of 
those theories which are associated with the name of the mer- 
cantile school of the seventeenth and eighteenth centuries. Such 
conditions will justify renewed study of that time-worn topic, 
the " Balance of Trade." 

I 

Mercantilism arose in the period when the precious metals 
discovered in the New Worl^ began to find their way into circu- 
lation in the various countjfies of Europe. One cardinal tenet 
of the school was that the statesman must exercise special care 
to secure for his country a sufficient stock of treasure in silver 
and gold. Spain and Portugal received directly from their colo- 
nies the riches that the treasure ships brought each year from 
the Indies ; but England and other countries, whose dependen- 
cies contained no mines of the precious metals, could, manifestly, 
obtain new supplies of specie only by way of trade. For this 
reason, an excess of exports over imports, which might be settled 
by an inflow of gold or silver, was considered a " favorable" bal- 
ance of trade, and became an object of solicitude to statesmen 
and to Avriters upon economic subjects. 

1 By C. J. Bullock. Reprinted, by permission of the publisher, from the 
North American Hevieio, July, 1901. 

453 



454 SELECTED HEADINGS IN ECONOMICS 

Two circumstances aroused endless discussion of the balance 
of trade in England from the early decades of the seventeenth 
century. The East India Company was obliged to export specie 
each year to pay for the goods it obtained from the East, where 
there was little demand for English products. Then the trade 
with France was believed to result in a balance unfavorable to 
England, so that it was thought that her traditional political 
rival was draining the country of its treasure. Partisans of the 
East India Company, such as Thomas Mun, insisted that the 
exportation of treasure to the East did no harm, because it was 
exchanged for products that were sold, at a still larger gain, in 
many countries of Europe ; but the unfavorable balance in the 
French trade occasioned serious anxiety. Several times com- 
merce with France was absolutely prohibited ; and at all periods 
heavy duties were imposed upon the staple imports from that 
country. Yet this branch of trade was long viewed with jealous 
eye ; and writer after writer made elaborate calculations of the 
amount of treasure lost by the dealings with France, prophesy- 
ing the utter ruin of the kingdom. " Make a law," they said, 
" to prohibit French trade : you need no wine and few of his 
commodities ; and France will grow poor, while we grow rich." 

Meanwhile, various Tory writers, such as Child, North, and 
Davenant, less hostile to France, had argued that an unfavora- 
ble balance in dealings with a particular country need cause no 
alarm, because commerce with other countries resulted in a net 
excess of exports on the entire trade of the nation. But the 
theories of the mercantilists were not effectually controverted 
until the time of David Hume and Adam Smith. Hume con- 
tended that money, whenever the means of communication are 
open, brings " itself nearly to a level," and that its purchasing 
power cannot vary greatly in different nations. Spain and 
Portugal, he said, could not by any laws keep within their borders 
all the treasure brought from the Indies, since such a course 
would merely lower its purchasing power in those countries and 
hasten its export to other places where it would command more 
commodities. Prices south of the Pyrenees could not be much 
higher than in France, since otherwise gold and silver would 



I 



INTEKNATIONAL TRADE 455 

flow northward in exchange for clicaper products. He said that, 
if the various states of the okl Saxon Heptarchy had maintained 
separate existences, each kingdom would have worried over the 
balance of trade. Moreover Hume attacked that insane ''jeal- 
ousy of trade " which marked the commercial relations of the 
various European states ; and insisted that, since a wealthy man 
or country is a better customer than a poor one, " the increase 
of the riches and commerce in any one nation, instead of hurt- 
ing, commonly promotes the riches and commerce of all its 
neighbors." 

It remained for Adam Smith to deal the death blow to the 
theories of the mercantilists. He contended that all natural 
trade is profitable, and tliat its profit consists, not in the specie 
it may bring into the country, but in the addition it makes to 
the annual produce of the land and labor of the nation. The 
mercantilists, he said, had prophesied the ruin, through an 
unfavorable balance of trade, of every commercial country in 
Europe ; and their forecasts had been discredited invariably. All 
the treasure that flowed fiom Peru and Brazil could not be re- 
tained by Spain and Portugal ; and every attempt of those coun- 
tries to check the outflow of specie merely tended to increase 
prices and to give other nations " double advantage " in their 
commerce with the Peninsula, by raising the prices obtainable 
for imports sent thither, Avhile making domestic products dearer 
and more diflicult to export at a profit. Since the publication of 
the " Wealth of Nations " few economists have thought it neces- 
sary to trouble themselves over imaginary evils resulting from 
the balance of trade. 

But recent developments in our foreign trade have led to the 
expression of views that difl"er but slightly, if at all, from the 
theories of the old mercantilists. We are said to be now creating 
a favorable balance of trade equal to $1300 for eveiy minute 
of the day ; while England, (lermany, and France are "writing 
a total of over one billion on the wrong side of the ledger " for 
each year's transactions. In foreign trade, we are told, it is, as 
in the philos<jphy of Mr. Micawber: "Annual income twenty 
pounds, annual expen«litures nineteen six, result happiness. 



456 SELECTED READINGS IN ECONOMICS 

Annual income twenty pounds, annual expenditures twenty- 
pounds aught and six, result misery." Then we read passages 
like the following : 

"Never before in the history of the United States were the 
profits from foreign business so large as in 1898 and 1899. By 
profits I mean the excess in value of the goods sold — that is, 
exported — over those bought — that is, imported." 

When a country imports more than she exports, she is said 
to be "a loser by her foreign trade," and "all the great nations 
of the earth," with the exception of Russia and the United 
States, are declared to suffer enormous " losses " by importing 
more than they export. True, an occasional writer recognizes 
that our excess of exports is offset, to some extent at least, by 
invisible items of international indebtedness ; while sometimes it 
is realized that the unfavorable balances of older countries mean 
cheaper food and raw material for the people, and represent also 
the return upon foreign investments of capital or the earnings of 
merchant marines. But the revival of mercantilist theories is 
sufficiently marked to deserve recognition as a general tendency 
in the thought of the day. 

II 

With this general subject of international trade, it is noto- 
riously true that the average man does not look with great favor 
upon reasoning based upon principles of a general and abstract 
character; while immediate results or events lying upon the 
surface of things create a far more powerful impression than 
the ultimate consequences of underlying forces. For this reason, 
the attention of the reader is now invited to a survey of the 
foreign exchanges of the United States during the years that 
have elapsed since the establishment of American independence. 
By such a study of simple historical facts it may be possible to 
enforce more successfully than in any other manner some ele- 
mentary truths concerning the real significance of the balance 
of trade. 

A preliminary word is necessary regarding the sources of in- 
formation. Statistics of international commerce always contain 



I 



INTERNATIONAL TIJADK 457 

an element of error, and this is especially true of the only data 
available for the early decades of our national existence. Prior 
to 1821 imports admitted free of duty were not reported at all, 
and the rest were not valued in a satisfactory manner, while 
the valuation of exports did not receive suflficient attention from 
the customs authorities. The statistics now accepted as official 
for this period were made up in 1835. Beginning in 1821, the 
annual reports on commerce and navigation were published 
with greater or less regularity, and there has probably been a 
constant improvement in the character of our commercial statis- 
tics. For many of the items, other than exports or imports of 
merchandise, that contribute to the international dealings of the 
United States, no official data are obtainable, and we are com- 
pelled to rely upon mere estimates that sometimes have a de- 
cidedly conjectural character. Precise computation, therefore, is 
impossible. The most that can be done is to demonstrate what 
the general tendencies have been in each epoch investigated. 

1. The first period that we shall study extended from 1789 
to 1820. It witnessed a rapid growth of our commerce up to 
the year 1807, when such events as the Embargo, Non-inter- 
course Acts, and the War of 1812 affected all industry most in- 
juriously. After the restoration of peace in 1815, a period of 
wild speculation, fostered by an inflation of the currency, en- 
couraged large importations of foreign products. These were 
viewed as a sign of prosperity while the " boom " lasted, but 
were st3'led an inundation of European goods as soon as the 
speculative fever abated. The reaction, however, lowered prices 
and checked the flow of imports, which decreased automatically 
from ^147,000,000 in 1816 to 874,000,000 in 1820. 

For the entire period of thirty-one years the estimated im- 
ports of merchandise and specie amounted to $2,350,000,000, 
while exports were placed at $1,839,000,000, an " unfavorable " 
balance of $511,000,000. Nor was this our only item of inter- 
national indebtedness. Foreign capital was largely represented 
in the debt of the federal government, and had been invested in 
the stocks of the first Bank of the United States and in other 
enterprises. For interest on all such investments we owed, for 



458 SELECTED READINGS IN ECONOMICS 

the entire period, a sum that is estimated at 8200,000,000 or 
more. But the amount due for the excess of imports and the 
interest on foreign capital had been balanced readily by the earn- 
ings of our merchant marine. The tonnage of the ships regis- 
tered for the foreign trade amounted for the entire period to 
20,000,000 tons engaged in traffic for one year. One estimate 
places the "balancing power," or. international earnings, of our 
shipping at $20,000,000 annually from 1789 to 1815; and another 
reckons the earnings at $800,000,000 for the period now under 
consideration. The neutral position of the United States during 
the wars that engaged the attention of Europe for so many 
years had enabled American vessels to carry the larger part of 
our exports and imports, besides earning large sums in trade be- 
tween different foreign ports. By this means, therefore, we had 
paid our international indebtedness, and had been enabled pi'oba- 
bly to import a considerable net balance of gold and silver.^ So 
far then from the country being drained of its money in pay- 
ment for the balance of imported merchandise, the banks held 
not less than $20,000,000 of specie in the year 1820 ; while Galla- 
tin and Crawford estimated that there had never been more 
hard cash in circulation. 

The situation was analyzed correctly by Timothy Pitkin in 
1817. He showed that a cargo of flour shipped to Spain in an" 
American vessel would be valued at $47,500 at domestic prices, 
and would figure at this amount in the returns of our exports. 
If the flour were sold in Spain at the usual advance necessary 
to cover freight, insurance, commissions, and a fair profit, it 
might command as much as $75,000. Then if the proceeds from 
the sale were invested in a return cargo that would be valued 
at our customhouses according to the prescribed methods, the 
final result of the voyage would be the importation of commodi- 
ties that exceeded very greatly the value of the original exports. 
Therefore he contended that, if the imports had not shown an 
excess, our ships would have incurred a loss on their voyages. 

1 The balance of $511,000,000 due on the excess of imports does not show 
the facts regarding the movement of specie, since the estimates do not separate 
the two items of merchandise and specie prior to 1821. 



INTEliNATiONAL TKADE 459 

2. From 1821 to 1830 our commerce showed no material 
increase over the first period. For this decade imports of mer- 
chandise aggregated ?B7 29,000,000 and exports were phiced at 
$694,000,000, an unfavorable balance of !iif35,000,000, which 
was slightly reduced by a net exportation of !ii'2,400,000 in 
specie. The indebtedness of the country was increased still 
further by whatever sums were due to foreign investors. Al- 
though the United States was reducing its public debt and 
returning considerable amounts of capital to foreign owners, 
the states had begun to contract debts, and borrowed during 
the decade <"^26,469,000. We may assume, therefore, that the 
sums returned to foreigner by the federal government were 
reinvested in state securities, and that the annual interest 
charge against the country remained nearly stationary. More- 
over Ameiicans were beginning to indulge more extensively in 
foreign travel, so that a new item of indebtedness affected the 
exchanges. The sums expended by our travelers, however, were 
offset in part by the money brought here by inmiigrants, who 
numbered 150,000 during the decade. 

Whatever the indebtedness of the country may have been on 
these various accounts, the earnings of our merchant marine 
sufficed to pay it, and to turn the exchanges in favor of the 
United States at the close of the period. After 1821 we have 
statistics showing the amounts of exports and imports canied 
in American and in foreig^n vessels. From this time the net 
result of the carrying trade can be computed upon the follow- 
ing basis. Since American consumers must bear the expense of 
bringing merchandise to this country, the freight charges on 
goods brought in foreign vessels will be reckon-ed as an element 
in our international indebtedness ; while the sums earned by 
American vessels in the import trade will be considered to have 
no effect upon the foreign exchanges. Similarly, with our ex- 
ports, we shall estimate that other countries are indebted to the 
United States for freights on goods carried in American vessels, 
and that cargoes shipped in foreign bottoms may be omitted 
from our computations. Estimates of the probable proportion 
between freight charges and the values of the products carried 



460 SELECTED HEADINGS IN ECONOMICS 

range from 10 to 15 per cent. We may therefore place the 
cost of ocean carriage at 121^ per cent ; and this estimate may 
continue to be used until, for recent decades, it becomes pos- 
sible to replace it by a better one. 

From 1821 to 1830 exports carried in American vessels aggre- 
gated $666,090,000, on which the freight charges v/ould be about 
$83,000,000; while imports brought in foreign bottoms were 
placed at slightly more than $61,000,000, which would be sub- 
ject to a charge of something more than $6,000,000. Thus our 
merchant marine earned from foreign countries about $77,000,- 
000, which would be somewhat increased by the profits from 
carrying goods between foreign ports. Again, therefore, our 
ships earned enough to balance the indebtedness incurred on 
other accounts ; and in 1829 and 1830 the net imports of specie 
amounted to $8,400,000, while foreign exchange was quoted in 
favor of the United States. 

3. The third period extends from 1831 to 1840. For the 
first six or seven years the country was engaged in an extraor- 
dinary speculative movement, which was followed by the inevi- 
table reaction and business depression. Population advanced at 
a rapid rate, immigration became very large, and sales of public 
lands increased greatly. The state banks were enabled to ex- 
pand their note issues from $61,000,000 in 1830 to $103,000,- 
000 in 1835, the notes being used in payment for the lands 
occupied by settlers. Then in 1836 the federal government dis- 
tributed $28,000,000 of surplus revenue among the states, this 
money finding its way into the banks, which increased their 
issues to $149,000,000 by the year 1837. Such an inflation of 
the currency raised prices and invited large importations of 
merchandise. Thus our imports rose from $62,720,000 in 1830 
to $176,579,000 in 1836, while exports increased much less 
rapidly. When the speculative mania ended in the crisis of 
1837 imports immediately decreased; but for the entire decade 
importations of merchandise exceeded exports by $159,700,000. 

More than this, the movement of specie showed for the 
ten years an excess of imports amounting to $50,650,000 ; 
so that on these two accounts the balance of importations 



I 



INTEKNATIO^AL TKADE 461 

was not less than -1210,000,000. This sum was far larger 
than the earnings of our merchant marine, which amounted to 
'^90,000,000. How shall we account for the unsettled balance 
of $120,000,000? 

The explanation is found in tlie large investments of Euro- 
pean capital that were placed in the United States during this 
period. Between 1830 and 1838 various states that had under- 
taken internal improvements created debts amounting to 'f 147,- 
835,000. For this purpose bonds were sold in other countries, 
and foreigners became indebted to America for the principal of 
the loans. Two circumstances, however, contributed to reduce 
the claims which the country held against foreigners on this 
account. The debt of the federal government, which amounted 
to -^39,123,000 in 1831, had been paid in full l\y the year 1835 ; 
and a considerable part of these securities had been owned in 
luirope. As a result, foreign investors had been able to pur- 
chase some of the state bonds by the simple reinvestment of 
funds already standing to their credit in the United States. In 
the second place, no small amount of interest had accrued upon 
federal and state securities during the decade, and this item 
may have amounted to thirty or forty millions.^ Foreign in- 
vestors therefore owed the United States i!l47, 835,000, less 
that part of the principal of the federal debt, and of the 
interest accruing upon all securities, for which this country was 
indebted to European capitalists. After making such deduc- 
tions, it is evident that our large imports of merchandise and 
specie had been made necessary by the movement of foreign 
capital toward the United States. 

4. The next decade opened with two or three years of con- 
tinued depression, but conditions improved after 1844, and 
subsequently the foreign commerce of the country began to 
show a decided increase. In 1847 the exchanges were affected 
greatly by the famine that followed the failure of the potato 
crop in Ireland. This event caused a remarkable increase in our 

1 Lest this estimate should appear too small, it will be well to add that, of 
the S147, 835,000 invested in state bonds, $107,823,000 was placed in this country 
after 1835. 



462 SELECTED KEADINGS IN ECONOMICS 

exports of breaclstuffs, which rose from $7,445,000 in 1845 to 
$53,262,000 in 1847. The result was that our exports of 
merchandise exceeded imports in the year last mentioned by 
$34,317,000. Such a sudden disturbance of trade caused a net 
importation of specie amounting to $22,214,000. This large 
inflow of money altered the condition of the exchanges ; so 
that in 1848 imports increased by $26,000,000, while exports 
declined more than $18,000,000, and a balance of $9,481,000 of 
specie was exported. 

From 1841 to 1850 the imports of merchandise aggregated 
$1,180,000,000, and exports were estimated at $1,195,000,000. 
Thus a small balance of something less than $15,000,000 stood 
to the credit of the United States. At the same time imports of 
gold and silver had exceeded exports by $21,830,000 ; so that 
the movements of merchandise and specie had reached approxi- 
mately a condition of equilibrium. From this fact one would 
infer that the invisible items of exchange must show a similar 
balance. Now what are the facts ? 

The panic of 1837 had checked the growth of state debts. 
In 1841 the aggregate indebtedness of the state and local gov- 
ernments was not much more than $216,000,000. When the 
states retired from industrial undertakings the field was left 
open for business corporations, which constantly increased in 
number, and began to find in Europe a market for a part of 
their securities. Thus investments of foreign capital, which 
were estimated at $200,000,000 in 1840, were supposed to 
amount to $261,000,000 in 1853. For the decade they may 
have averaged $225,000,000, upon which the aggregate interest 
charges would amount to $135,000,000. 

But this debt to holders of American securities was dimin- 
ished by the $40,000,000 or $50,000,000 of new capital that 
sought investment in this country ; so that our foreign indebt- 
edness on this account was $85,000,000 or $95,000,000. 

Upon the other hand, our merchant marine carried away from 
our shores exports that exceeded by $690,000,000 the imports 
that were brought to this country in foreign vessels. Therefore, 
on account of ocean freights, the United States was entitled to 



IM'ERNATiOXAL TKAJ)E 463 

a credit of •¥86,000,000, which would balance approximately the 
interest due to foreign holders of American securities. Cargoes 
carried by our ships between foreign ports increased the earn- 
ings of the merchant marine ; and were sufficient, perhaps, to 
balance any foreign outlays occasioned by the operations of our 
army during the jNlexican War. Since specie exports exceeded 
imports in 1850 and 1851, we may conclude that some debts 
remained unadjusted at the close of this period. 

5. In the ensuing decade our foreign commerce increased 
nearly 125 per cent over the figures for any previous period of 
equal length, and merchandise imports exceeded exports by 
!?355,800,000. 

Passing over, for the moment, the movement of specie, we 
find that state and local debts increased by 8100,000,000 during 
the decade; while 21,000 miles of railroad were constructed, for 
which large amounts of iron rails were imported in exchange 
for newly issued securities. Foreign investments may have 
amounted to some .'i<300,000,000 or iit'350,000,000, upon an 
average ; but it is difficult to secure any satisfactory estimates. 
The annual interest charges may have been some §^18,000,000 
to !i!21,000,000, and, if we deduct 880,000,000 for new invest- 
ments, we may place the debt due to foreign capitalists at from 
8100,000,000 to 8130,000,000 for the decade. Thus the United 
States was a debtor for 8355,000,000 of imported merchandise, 
for 8100,000,000 to 8130,000,000 on interest charges, and per- 
haps for an unsettled balance from the year 1850. 

To meet these claims the profits of the merchant marine 
proved wholly inadequate. The net earnings of our ships 
amounted to no more than 8158,000,000. Evidently some new 
cause had been operating to disturb the exchanges, and to in- 
crease our obligations beyond the point where the earnings of 
our ships could establish an equilibrium. 

We must now return to the movement of gold and silver. 
Upon the opening of the California mines our domestic gold 
output suddenly rose from insignificant proportions to 850,000,- 
000 in 1850 ; and subsequent years showed a still larger product, 
which was several times as great as the amount secured annually 



464 SELECTED EEADINGS IN ECONOMICS 

from all countries of the world prior to 1845. From 1851 to 

1860 the aggregate production of gold in the United States 
equaled i550,000,000, and this was five or six times the estimated 
specie circulation of the country in any year before the discov- 
eries in California. The money in circulation in 1850, including 
bank notes as well as specie, was no more than $285,000,000, or 
about $12 per capita. If the new gold could have been retained 
in the country, our circulating medium would have risen to 
$835,000,000 for the year 1860, or $26.60 per capita. Such a 
sudden inflation as this would have raised prices far above the 
level prevailing in other parts of the world, put an end to 
the exportation of many products, and attracted imports from 
all quarters of the globe. Therefore the new gold began to 
flow out of the country after prices had been raised to a point 
at which the import trade could increase sufficiently to pro- 
duce this result; and from 1851 to 1860 we exported a net 
balance of $417,608,000. By 1860 our specie circulation had 
risen to $235,000,000, an increase of $81,000,000 in ten years; 
while the issues of bank notes had grown to $207,000,000, giv- 
ing the country a supply of money that averaged $14.06 per 
capita. The United States had become one of the leading 
gold-producing regions, and the course of the exchanges was 
inevitably altered. 

6. Even more instructive was the period that extended from 

1861 to 1873. The fiscal year 1860 had been marked by great 
prosperity, and both exports and imports were larger than at any 
former time. But the Civil War wrought havoc with our foreign 
trade, which, in the space of two years, shrank to little more than 
one half of the proportions reached in 1860. Especially marked 
was the decline in our exports of cotton, which decreased from 
$191,800,000 in 1860 to an average of $11,700,000 from 1861 
to 1865. But in 1863 the volume of foreign trade began to 
increase ; and after the restoration of peace the expansion was 
very rapid. 

In 1862 the federal government began to issue inconvertible 
paper, which produced an inflation of the currency, raising prices 
and intensifying the speculative movement naturally induced by 



IXTEJIXATIONAL TRADE 465 

the enormous public expenditures for military purposes. The in- 
evitable result was a large increase of merchandise imports, which 
rose from f 243,000,000 in 1863 to .^642,000,000 ten years later. 
While it is true, as Cairnes contended, that high prices in incon- 
vertible paper would not tend to favor the growth of imports, 
because foreigners did not exchange commodities for depreciated 
greenbacks but received payment in gold, it is certain", also, that 
the speculative mania had raised gold prices somewhat above the 
level prevailing in other countries, so that the inflow of commodi- 
ties was greatly stimulated. For the thirteen years ending in 
1873 imports of merchandise aggregated J^5, 107, 000,000, while 
exports were placed at $3,952,000,000, a balance of nearly 
f!l,l 55,000,000 against this country. 

But this was not the only account which foreigners held 
against the United States. Our merchant marine had suffered 
irreparable damage from the ravages of the Confederate cruisers, 
and the proportion of our foreign trade carried in American ves- 
sels had greatly decreased. For this entire period the imports 
brought to our shores in foreign ships exceeded the exports carried 
in our own vessels by Jr'l, 500,000,000. This gave rise to a debt of 
8187,500,000. For the first time in our history we were indebted 
to foreigners on account of the carrying trade ; and the aggre- 
gate of our obligations for merchandise and freight amounted to 
f 1,342,000,000.1 Moreover, it was estimated by David A. Wells, 
in 18G9, that American travelers were then spending #25,000,000 
annually in foreign countries, and the money brpught here by 
immigrants could not have counterbalanced such an outlay. But 
there were other international transactions that restored the ex- 
changes to an equilibrium. 

In the first place, the net exports of specie during the thirteen 
years had amounted to no less than $677,822,000, this sum rep- 
resenting nearly nine tenths of the output of our mines at this 
jieriod. The rest of our foreign indebtedness was settled by the 
flow of European capital into the United States. From 1861 to 

1 The sum due for freight should, however, be considerably reduced, because 
many American vessels had been registered under foreif;;n flags, and the earnings 
of such sliips should not be credited to foreign account. 



i66 SELECTED KEADIKGS IN ECONOMICS 

1863 there seem to have been large withdrawals of foreign in- 
vestments on account of the disturbed conditions caused by the 
war; but during the next ten years the movement of capital' 
turned in the other direction. The federal government had in- 
curred an interest-bearing debt of $2,381,000,000, state and local 
indebtedness had increased by some $500,000,000, while 39,642 
miles of railways had been constructed. Foreign investors were 
attracted by the securities issued for these purposes. 

In 1868 Secretary McCulloch estimated the foreign invest- 
ments at $850,000,000, exclusive of railway stocks. The follow- 
ing year Mr. Wells computed that $1,100,000,000 of federal and 
local securities were held in other countries, while $365,000,000 
of European capital had been placed in railway and other enter- 
prises. Even if this estimate was too large in 1869, we may be 
certain that not less than $1,500,000,000 of foreign investments 
had been made by 1873 ; because the inflow of capital had been 
very rapid during the interval, amounting to $100,000,000 for the 
first eight months of the latter year. Now if we place the with- 
drawals of the years 1861 and 1862 at $200,000,000, it may be 
considered that foreign capitalists were indebted to the United 
States for $1,300,000,000 on account of the principal of new in- 
vestments. This debt would be decreased by the interest charges 
that had accrued prior to 1873, but the precise amount of this 
allowance cannot be determined. Remembering, however, that 
most of the capital came to the country after 1863 and that the 
interest was stated at $88,000,000 in 1869-, we may estimate it as 
equivalent to some $80,000,000 annually for a period of six years. 
Thus the aggregate indebtedness of foreign investors would be 
reduced to about $820,000,000. This was the item, therefore, 
which, in addition to the $677,000,000 of specie exports, fur- 
nished the means of settling the enormous balance due on mer- 
chandise, freights, and travelers' expenses. 

Manifestly, such a condition of the exchanges could not 
continue. Even if nothing had occurred to check the inflow of 
foreign capital, the growing interest charges would have ex- 
ceeded ultimately the annual investment of principal. In 1869 
Mr. Wells had prophesied that exports of merchandise must 



INTERS' ATlOKAL TRADE 467 

increase, sooner or later, in order to pay for the interest accruing 
to European capitalists. More explicitly still, in 1878, Pro- 
fessor Cairnes wrote : 

These considerations lead me to the conclusion that the present condi- 
tion of the external trade of the United States is essentially abnormal and 
temporary. If that country is to continue to discharge her liabilities to 
foreigners, the relation which at present obtains between exports and im- 
ports in her external trade must be inverted. . . . This, it seems to me, is 
a result which may be predicted with the utmost confidence. The end may 
be reached by an extension of exportation, or by a curtailment of importa- 
tion, or by combining both these processes, but by one means or the other, 
reached it will need to be. 

Proceeding a step further, Cairnes showed that the excess of 
'exports over imports could not be established unless the high 
prices then ruling in this country should be materially lowered, 
or prices in Europe should show a considerable advance ; and he 
considered it probable that the change would come about by a 
fall of prices in the United States sufficient to make importation 
more difficult and exportation more profitable. Such a decline of 
the price level would probably " come with a crash," so that he 
looked forward " to the immediate future of American trade as a 
period of much disturbance and fluctuation, culminating, it is pos- 
sible, from time to time, in commercial crises." Before his book 
appeared, these prophecies were in course of literal fulfillment. 

7. The last period extends from 1874 to 1896. In September, 
1873, the whole fabric of ten years' speculation utterly collapsed, 
while prices fell to a point at which imports must decrease and 
exports could expand. In 1874, for the first time in twelve years, 
exports of merchandise exceeded imports ; and this condition was 
maintained in eighteen out of the next twenty-two years. By 
the close of the fiscal year 1896 the exports for the entire period 
stood at 817,479,000,000, Avhile imports were placed at*15,190,- 
000,000, a favorable balance of 82,289,000,000. In addition to 
this, exports of specie showed an excess of 8529,000,000 over 
imports ; so that the United States was entitled to a total credit 
of 82,818,000,000. This meant simply that the country had 
assumed its normal position as a debtor nation on the various 



468 SELECTED READINGS IN ECONOMICS 

items of invisible exchanges, and was paying annually some- 
thing like $122,500,000 on such accounts. 

In the first place, we owed foreign nations for interest upon a 
mass of invested capital, which was not less than f 1,500,000,000 
in 1874, and increased to some $2,000,000,000 before the close 
of this period. The rate of interest upon these investments de- 
creased from 6 to perhaps 4 per cent, as the years passed, and 
may have averaged about 5 per cent. This would make the an- 
nual interest charge stand at $80,000,000 or $90,000,000 upon 
the average amount of capital invested ; so that, for the twenty- 
three years, this country owed from $1,840,000,000 to $2,070,- 
000,000. But this sum would be decreased by the new invest- 
ments made during the period, which aggregated $500,000,000. 

Secondly, our foreign merchant marine showed a continual 
decline, so that imports brought in foreign vessels exceeded ex- 
ports carried in American ships by $9,267,000,000, At the pres- 
ent time it is thought that freight charges upon imports are about 
10 per cent of the value of the cargoes, while upon exports the 
estimated charges are as high as 15 per cent. Upon this basis 
the net earnings of foreign ships would aggregate $805,000,000. 
This item of indebtedness tended to increase as the proportion 
of imports in American bottoms declined. 

Finally, there were several kinds of debt that cannot be ascer- 
tained with much accuracy. In 1869 the annual expenditures 
of American travelers were placed at $25,000,000, but for recent 
years they have never been estimated at less than $50,000,000. 
Upon this account, however, a certain reduction should be made 
for the money brought into the country by immigrants and foreign 
travelers. Then it is known that considerable amounts of real 
estate are owned by foreign capitalists, and that the rentals upon 
such property are no small item. Also various foreign corpora- 
tions, such as insurance companies, conduct a large business in 
this country ; and their annual profits go to swell the volume of 
our international indebtedness. When all allowances are made 
for the uncertainty of the data, enough facts have been presented 
to account for the constant excess of exports of merchandise and 
specie from 1873 to 1896. At the close of the period under 



INTERNATIONAL TRADE 460 

consideration the invisible elements of indebtedness must have 
amounted to |!80,000,000 interest upon *2,000,000,000 of 
foreign capital ; !!>52,000,000 due to foreign ships ; something 
less than •i'oO, 000,000 expended by American tourists ; and 
indefinite sums that must have carried the debt up to $200,000,- 
000 per annum. 

Ill 

From this survey of the progress of American commerce, cer- 
tain important conclusions may be drawn concerning the theory 
of the balance of trade. 

1. Exports and imports of merchandise may throw no light 
upon the movement of specie, so that a favorable balance may 
not result in an inflow of gold or an unfavorable balance cause 
an outflow. From 1831 to 1840 merchandise imports exceeded 
exports by flS 9,90 0,000, while the net imports of specie 
amounted to 850,650,000. On the other hand, from 1873 to 
1896 a favorable balance of trade amounting to $2,289,000,000 
was accompanied by a net exportation of $529,000,000 in specie. 

2. Many items that are not included in the customs statis- 
tics enter into the determination of the foreign exchanges ; and, 
over a period of years, all these elements regulate themselves in 
such a manner that the total credits of a nation equal the aggre- 
gate of the accounts upon which it stands a debtor. 

3. Whether imports shall exceed exports or exports rise 
above imports, depends wholly upon the position of the country 
as a producer of precious metals, or as a debtor or creditor on 
account of the movements of capital, of the carrying trade, of 
foreign travel, and the like. If capital is seeking investment in a 
new country, as "Was the case in the United States from 1831 to 
1837 and from 1863 to 1873, imports must exceed exports ; and 
this condition will be desirable or undesirable according to the 
advantages or disadvantages of the situation that invites foreign 
investments. When the inflow of capital ceases, exports must be 
sent to pay for the interest that accrues each year ; and a favor- 
able balance of trade caused in this way will point simply to 
the fact that the country is able to pay its debts, and will not 



470 SELECTED READINGS IN ECONOMICS 

indicate a peculiarly profitable condition of trade. If a country 
engages extensively in ocean carrying, imports of commodities 
will tend to exceed exports ; and the unfavorable balance will be 
the measure of the profits derived from the merchant marine. 
Finally, in a country that mines an unusual quantity of the 
precious metals, gold and silver will be exported constantly to 
other nations where they are less abundant; and this will force 
larger imports of commodities. This was the condition produced 
by the Californian discoveries, and it continued until our growing 
indebtedness to foreign capitalists and ship owners exceeded the 
annual product of our mines and caused an enormous excess of 
exports after 1874. 

4. In all cases the precious metals are used chiefly to pay 
balances, and they form but a very small element in the interna- 
tional exchanges. From 1821 to 1896 the merchandise exports 
and imports of the United States aggregated more than ^53,000,- 
000,000, while the entire shipments of gold and silver were less 
than $5,000,000,000. 

All of these conclusions could be reenforced by a study of the 
commerce of other countries. In general, it is the younger and 
poorer nations that show an excess of exports over imports, while 
the opposite condition prevails in older countries that possess 
greater accumulations of wealth. Great Britain has had an 
enormous unfavorable balance of trade for many years, and 
must continue to do so as long as the earnings of her merchant 
marine and the interest on her foreign investments remain as 
large as they are at the present time. 

The general conclusion is, therefore, that the movements of 
merchandise indicate nothing more than the position which a 
country occupies as a debtor or a creditor upon account of the 
invisible exchanges that form so important an element in inter- 
national transactions. 

But this statement of the case is not quite complete, and 
needs to receive one important qualification before it can be ac- 
cepted by the practical financier. From his point of view an 
excess of imports or of exports is frequently a matter of great 
importance. Both domestic and foreign exchanges are conducted 



J^■TEK^AT1()^AL TKADE 471 

by means of a complicated system of credit, the volume of which 
greatly exceeds the reserves of ready money that serve as its 
foundation. At those seasons of the year when our exports of 
staple products are largest, exchange usually turns in favor 
of this countr}', and gold imports are to be expected. At other 
seasons, when imports of merchandise are heaviest, exchange 
may turn in the opposite direction and cause an outflow of 
gold. Such fluctuations in the exchanges have always existed, 
and are natural and inevitable under any system of monetary 
or commercial policy ; but they may be important to the world 
of finance. 

A favorable turn in the exchanges that results in a temporary 
inflow of gold increases the reserves of the banks, making inoney 
plentiful and cheap in the financial centers ; and such conditions 
are favorable to business activity. Upon the other hand, a move- 
ment of specie away from the country tends to decrease the re- 
serves, harden the money market, and raise the discount rate. 
All this, however, is a matter of temporary importance if the cur- 
rency of the nation is upon a thoroughly sound basis, and if the 
general condition of business is healthful. When gold imports 
lower the rate of discount, prices of merchandise and securities 
rise, and conditions are favorable for increased importations of 
foreign goods. Moreover this tendency is accentuated by the 
concomitant fall in the rate of sterling exchange, which increases 
the profits that importers derive from their transactions. The 
result is that the tide soon turns in the opposite direction, 
and the inflow of gold is checked automatically. When, how- 
ever, exchange rises to the point that makes gold exports 
necessary, discount rates are increased, prices tend toward a 
lower level, foreign bills drawn against exports yield a larger 
profit, and trade is given a counter impulse that restores the 
equilibrium. 

But the case may be different. If business has been moving 
onward upon a course of mad speculation, straining to the utmost 
the delicate mechanism of credit, an unfavorable turn of the 
foreign trade may cause exports of gold at a time when specie 
reserves are all too small to withstand such a strain. Thus it is 



472 SELECTED READINGS IN" ECONOMICS 

that panics are precipitated. If, in addition, the currency of the 
country is unsound, the importance of a rise in sterling exchange 
is greatly magnified. From 1878 to 1893 the United States was 
engaged in reckless experiments with its paper and silver money. 
The federal treasury had undertaken to circulate, at a parity with 
gold, a mass of debased currency the amount of which steadily 
increased under the operation of our laws calling for purchases 
of silver ; while the banks, which had formerly supplied what- 
ever specie might be needed for export, felt compelled in 1892 
to draw upon the precarious gold reserve which the government 
endeavored to maintain. As soon as this occurred, every demand 
for gold needed in foreign shipments caused a drain on the 
slender reserve upon which the stability of our monetary system 
depended. Under such circumstances, an unfavorable turn of 
the exchanges was fraught with the direst peril. 

But with these qualifications, the conclusions reached in the 
earlier part of our discussion will stand as correct beyond all 
reasonable doubt. There can be no greater error than to measure 
the advantages derived from the commerce of a nation by the 
excess of exports over imports, or to suppose that an unfavorable 
balance is a certain proof that the trade has become unprofitable. 
At the same time, a highly speculative market may well apprehend 
the consequences of an adverse turn in the exchanges ; while a 
nation with an unsound monetary system will always be the 
sport of every fluctuation in foreign transactions. Moderation 
in business activity and the establishment of a standard of value 
that cannot be shaken, would rob the balance of trade of its last 
vestige of significance. 

2. List's Argument for Protection^ 

I. General Principles 

In the economical development of nations it is necessary to 
distinguish the following principal stages : the savage state, 
the pastoral state, the agricultural state, the agricultural and 

1 Extracts from List's National System of Political Economy (1841). Ameri- 
can translation by G. A. Matile. 



IN TKK N AT l( )>; AL TKAJ )E 4 73 

manufacturing state, and, finally, the agricultural, manufactur- 
ing, and connnercial state.' 

It is obvious that a nation possessing an extensive territory,' 
enriched with varied resources and a numerous population, 
uniting agriculture and manufactures with an external and 
internal trade, is beyond comparison more civilized, politically 
more developed, and more powerful than any merely agricul- 
tural country. But manufactures constitnte the basis of external 
and internal trade, of navigation, of an improved agriculture, 
consequently of civilization and political power ; and should 
any nation succeed in monopolizing all the manufacturing 
activity of the world, and in checking all other nations in their 

1 Elsewhere List says concerning these economic stages: "In reference to 
political economy, nations have to pass through the following stages of develop- 
ment, — the savage state, the pastoral state, the merely agricultural state, and 
the state at once agricultural, manufacturing, and commercial. The history of 
industry in England exhibits more clearly than any other the transition from 
the savage to the pastoral state, from the rearing of cattle to agriculture, and 
from agi'iculture to the first attempts in manufacture and navigation ; it shows 
also that this transition is favored and expedited by free trade with free cities 
and more advanced nations ; and that a prosperous manufacturing industry, a 
considerable marine, and a vast external commerce, can be acquired only by 
the intervention and aid of government. 

" The less agriculture has advanced, the more external trade has had to do in 
exchanging the surplus of agricultural products and raw materials of the coun- 
try for articles manufactured abroad ; the deeper a nation is plunged into 
barbarism, the more it requires the regimen of absolute monarchy, and the 
more free trade, that is, the export of agricultural products and the import of 
manufactured products, concurs in its prosperity and civilization. 

" On the contrary, when agriculture and the other useful arts have been devel- 
oped among a people, and when their social and political position has been 
improved, less advantage can be derived from the exchange of agricultural prod- 
ucts and raw materials for foreign manufactiu'ed articles ; and competition with 
more advanced manufacturing nations will prove injurious. 

"It is only in similar nations, that is, in those possessing all the qualities, 
all the moral and material resources required to establish a home manufactur- 
ing industry, and to reach thus the highest degree of civilization, prosperity, 
political power, subject, however, to injury from competition with foreign 
industry already well advanced, that commercial restrictions for the purpose 
of creating and sustaining a manufacturing industry can be legitimate and 
successful ; they are so only until that industry becomes strong enough no 
longer to fear foreign competition ; and they are legitimate within that inter- 
val, only in the neces.sary degree to protect that industry in its foundations." 
— El.. 



474 SELECTED READINGS IN ECONOMICS 

economical development by reducing them to the mere produc- 
tion of agricultural commodities, raw materials, and other 
indispensable local productions, it would undoubtedly attain to 
very wide, if not to universal, dominion. 

A nation that greatly values its independence and its safety 
must make a vigorous effort to elevate itself, as fast as possible, 
from an inferior to a higher state of civilization, uniting and 
perfecting as quickly as possible its own agriculture, manufac- 
tures, navigation, and commerce. 

The transition from the savage to the pastoral, and from the 
pastoral to the agricultural state, as well as the first progress 
in agriculture, is very efficiently promoted by free intercourse 
among manufacturing and commercial nations. The elevation 
of an agricultural people to the condition of countries at once 
agricultural, manufacturing, and commercial can only be accom- 
plished under the law of free trade when the various nations 
engaged at the time in manufacturing industry shall be in the 
same degree of progress and civilization ; when they shall place 
no obstacle in the way of the economical development of each 
other, and not impede their respective progress by war or adverse 
commercial legislation. 

But some of them, favored by circumstances, having dis- 
tanced others in manufactures, commerce, and navigation, and 
having early perceived that this advanced state was the surest 
mode of acquiring and keeping political supremacy, have adopted 
and still persevere in a policy well adapted to give them the 
monopoly of manufactures, industry, and commerce, and to im- 
pede the progress of less advanced nations or those in a lower 
degree of culture. The measures enforced by such nations, 
taken as a whole, — the prohibitions, the duties on imports, 
the maritime restrictions, premiums upon exports, etc., — ■ are 
called the protective system. 

The anterior progress of certain nations, foreign commercial 
legislation, and war have compelled inferior countries to look 
for special means of effecting their transition from the agricul- 
tural to the manufacturing stage of industry, and as far as prac- 
ticable, by a system of duties, to restrain their trade with more 



INTERNS ATiON A L TRADE 475 

advanced nations aiming at manufacturing monopoly. The 
system of import duties is consequently not, as has been said, 
an invention of speculative minds ; it is a natural consequence 
of the tendency of nations to seek for guarantees of their exist- 
ence and prosperity, and to establish and increase their weight 
in the scale of national influence. Such a tendency is legiti- 
mate and reasonable only so far as it renders easy, instead of 
retarding, the economical development of a nation ; and it is 
not in opposititm to the higher objects of society, — the univer- 
sal confederation of the future. 

As luiman association ought to be considered under two 
points of view, — the cosmopolitan, embracing all the human 
race, and the political or merely national, — every economy, 
private or public, ought to be considered under two different 
aspects, — the individual, social, and material power, by means 
of which riches are produced, and the interchangeable value of 
the products of industry. There are, consequently, a cosmo- 
politan economy and a political economy, a theory of inter- 
changeable value, and a theory of productive power. These 
doctrines are distinct in their essence, and require to be devel- 
oped separately. 

The productive power of nations is not dependent solely on 
the labor, the saving, the morality, and the intelligence of indi- 
viduals, or on the possession of natural advantages and material 
capital ; it is dependent also upon institutions and laws, social, 
political, and civil, but, above all, on the security of their dura- 
tion, independence, and power as nations. Individuals would 
be in vain laborious, economical, ingenious, enterprising, intelli- 
gent, and moral, without a national unity, without a division of 
labor and a cooperation of productive power. A nation cannot 
otherwise attain to a high degree of prosperity and power, or 
m.aintain itself in the permanent possession of its intellectual, 
social, and material riches. 

The principle of the division of labor has been hitherto but 
imperfectly understood. Industrial production depends much 
less on the apportioning of the various operations of a manu- 
facture among several individuals, than on the moral and 



476 SELECTED READINGS IN" ECONOMICS 

material association of those individuals for a common end. 
This principal applies not only to a manufacture or a rural 
industry ; it extends also to every kind of national industry, — 
agricultural, manufacturing, and commercial. 

The division of labor and the combination of productive 
power take place in a nation when the intellectual power is 
applied so as to cooperate freely and efficiently with national 
production, when manufacturing industry and trade are equally 
and harmoniously developed. A merely agricultural people in 
free intercourse with manufacturing and trading nations will 
lose a considerable part of their productive power and natural 
resources, which must remain idle and unemployed. Its intel- 
lectual and political culture and its means of defense will thus 
be limited. It can possess neither an important navigation nor 
an extensive trade ; its prosperity, as far as it results from 
external commerce, may be interrupted, disturbed, or annihi- 
lated by foreign legislation or by war. 

On the other hand, manufacturing industry is favorable to 
science, art, and political progress ; it promotes the general 
welfare, increases population, public revenue, and the power of 
the country ; it enables the latter to extend its influence to all 
parts of the world, and to found colonies ; it sustains fisheries 
and navies, mercantile and national. By it only can agriculture 
rise to any high degree of efficiency and perfection. Agricul- 
ture and manufacturing industry united in the same nation, 
under the same political power, live in perpetual peace ; they 
are disturbed in their reciprocal action neither by war nor by 
foreign legislation ; they insure to a nation the continued devel- 
opment of its prosperity, civilization, and power. 

Agriculture and manufacturing industry are subjected by 
nature to special conditions. 

The countries of the temperate zone are especially fit for the 
development of manufacturing industry ; for the temperate 
zone is the region of intellectual and physical effort. If the 
countries of the torrid zone are little favored in reference to 
manufactures, they possess, on the other hand, the natural 
monopoly of many precious commodities which the inhabitants 



INTERNATIONAL TRADE 477 

of the temperate climates greatly prize. The exchange of the 
manufactuied products of the one for the commodities of the 
other constitutes a division of labor and a cooperation of pro- 
ductive power throughout the chief commercial nations, and 
mainly constitutes the great international trade of the world. 

A colintry of the torrid zone would make a very fatal mis- 
take should it try to become a manufacturing country. Having 
received no invitation to that vocation from nature, it will pro- 
gress more rapidly in riches and civilization if it continues to 
exchange its agricultural productions for the manufactured 
products of the temperate zone. It is true that tropical coun- 
tries sink thus into dependence upon those of the temperate 
zone, but that dependence will not be Avithout compensation if 
competition arises among the nations of temperate climes in 
their manufacturing industry, in their trade with the former, 
and in their exercise of political power. This competition Avill 
not only insure a full supply of manufactures at low prices, but 
will prevent any one nation from taking advantage of its superi- 
ority over the weaker nations of the torrid zone. There would 
be danger and damage in this dependence only so far as manu- 
factures, important branches of trade, foreign commerce, and 
maritime power should become the monopoly of a single nation. 

Nations of the temperate zone possessing extensive territory 
enriched with varied resources have lost one of the richest 
sources of prosperity, civilization, and power, if they do not 
succeed in realizing a national division of labor and a coopera- 
tion of national productive power, as soon as they possess the 
necessary conditions, economical, intellectual, and social, for 
accomplishing it. By economical conditions we understand an 
advanced stage of agriculture which cannot be sensibly stimu- 
lated by the export of its products ; by moral conditions, a high 
moral culture among individuals ; by social conditions we mean 
legal security for citizens for their persons and properties and 
the free exercise of their moral and physical faculties, — insti- 
tutions regulating and facilitating trade, and suppressing all 
restraints upon industry, liberty, intelligence, and morality, as, 
for instance, feudal institutions. 



478 SELECTED HEADINGS IN ECONOMICS 

It is of the utmost concern for a nation uniting such advan- 
tages first fully to supply its own wants, its own consumption, 
with the products of its own manufactures ; then to form direct 
connections progressively with the countries of the torrid zone, 
transmitting to them, upon its own vessels, its manufactured 
products, receiving in exchange their commodities. In compari- 
son with this exchange of the manufactured products of the 
temperate for the agricultural productions of the torrid zone, 
other international trade is of a secondary importance, if we but 
except the trade in a few special articles, — wine, for instance. 

The production of raw materials and commodities among the 
great nations of temperate climes has no real importance but in 
regard to internal trade. An uncultivated nation may at the 
beginning advance its agriculture by the exportation of wheat, 
wine, flax, hemp, and wool ; but no great nation ever arrived 
at wealth, civilization, and power. by such policy. It may be 
stated as a principle that a nation is richer and more powerful 
in proportion as it exports more manufactured products, imports 
more raw materials, and consumes more tropical commodities. 

Productions of the tropics serve manufacturing countries of 
temperate climes not only as raw materials and alimentary com- 
modities, but also, and especially, as stimulants for agricultural 
and industrial labor. The nation which consumes the greatest 
quantity of tropical commodities will always be that of which 
the agricultural and manufacturing production is relatively the 
most considerable, and that which consumes the greatest quan- 
tity of its own products. 

In the economical development of nations by means of exter- 
nal trade, four periods must be distinguished. In the first, 
agriculture is encouraged by the importation of manufactured 
articles, and by the exportation of its own products ; in the 
second, manufactures begin to increase at home, while the im- 
portation of foreign manufactures to some extent continues ; in 
the third, home manufactures mainly supply domestic consump- 
tion and the internal markets ; finally, in the fourth, we see the 
exportation upon a large scale of manufactured products, and 
the importation of raw materials and agricultural products. 



INTERNATIONAL TKADK 471) 

The system of import duties, considered as a mode of assist- 
ing the economical development of a nation by regulating its 
external trade, must constantly take as a rule the principle of 
the industrial education of the country. 

To encourage agriculture by the aid of protective duties is 
vicious policy ; for agriculture can be encouraged only by pro- 
moting manufacturing industry ; and the exclusion of raw mate- 
rials and agricultural products from abroad has no other result 
than to impede the rise of national manufactures. The econom- 
ical education of a country of infeiior intelligence and culture, or 
one thinly populated relatively to the extent and the fertility of 
its territory, is effected most certainly by free trade with more 
advanced, richer, and more industrious nations. Every commer- 
cial restriction in such a country aiming at the increase of man- 
ufactures is premature, and will prove detrimental not only to 
civilization in general but the progress of the nation in partic- 
ular. If its intellectual, political, and economical education, 
under the operation of free trade, has advanced so far that the 
importation of foreign manufactures and the want of markets 
for its own products have become an obstacle to its ulterior 
development, then only can protective measures be justified. 
******** 

If protective duties enhance for a time the price of domestic 
manufactures, they secure afterwards lower prices by means of 
internal competition ; for an industry that has reached its full 
development can safely reduce its prices far below those which 
were necessary to insure its growth, and thus save to its con- 
sumers the whole expense of transportation and the Avhole 
profits of trade which are consequent upon imports of the same 
articles from other countries. The loss occasioned by protective 
duties consists, after all, only in values ; while the country thus 
acquires a power by which it is enabled to produce a great mass 
of values. This loss in values must be considered as the price 
of the industrial training of the country. 

Protective duties upon manufactured products do not press 
heavily upon the agriculture of a country. By the development 
of manufacturing industry the wealth, population, consumption 



480 SELECTED READINGS IN ECONOMICS 

of agricultural products, rent, and exchangeable value of real 
estate are vastly increased, while the manufactured products 
consumed by farmers gradually fall in price. The gain thus 
realized exceeds, in the proportion of ten to one, the loss 
which agriculturists incur by the transient rise of manufac- 
tured products. 

Internal and external trade flourish alike under the protective 
system ; these have no importance but among nations supplying 
their own wants by their own manufacturing industry, consum- 
ing their own agricultural products, and purchasing foreign raw 
materials and commodities with the surplus of their manufac- 
tured articles. Home and foreign trade are both insignificant 
in the merely agricultural countries of temperate climes, and 
the external commerce of such lands is usually in the hands 
of the manufacturing and trading nations in communication 
with them. 

A good system of protection does not imply any monopoly 
for the manufacturers of a country ; it only furnishes a guaran- 
tee against losses to those who devote their capital, their talents, 
and their exertions to new branches of industry. There is no 
monopoly, because internal competition comes in the place of 
foreign competition, and every individual has the privilege of 
taking his share in the advantages offered by the country to its 
citizens ; it is only an advantage to citizens as against foreign- 
ers, who enjoy in their own country a similar advantage. 

But this protection is useful not only because it awakens the 
sleeping energies of a country and puts in motion its produc- 
tive power, but because it attracts the productive power of for- 
eign countries, including capital, both material and moral, and 
skillful masters as well as skillful men. 

On the other hand, the absence of manufacturing industry in 
a nation long civilized, the productive powers of which cannot 
be sensibly excited by the export of raw materials and agricul- 
tural products and by the importation of foreign manufactures, 
exposes it to numerous and serious inconveniences. 

The agriculture of such a country must necessarily suffer; 
for the surplus population which, in a great manufacturing 



INTERNATIONAL TllADE 481 

development, finds means of living in factories and creates a 
large demand for agricultural products, thus affording substan- 
tial profits to agriculture, will be reduced to the labor of the 
field ; and thence will follow a subdivision of farms and a small 
culture, both as prejudicial to the power and the civilization of 
a country as to its wealth. An agricultural people consisting 
chiefly of proprietors of small estates can neither fill the chan- 
nels of internal trade with large quantities of commodities nor 
furnish a large consumption for manufactured goods ; in such 
a country every one is limited almost to his own production and 
his own consumption. In circumstances like these no complete 
system of communications can be establislied, and the immense 
advantages which they afford are lost to the country. 

Hence ensues necessarily moral and material, individual and 
political, weakness. The danger is aggravated when neighbor- 
ing nations pursue a different policy ; some making progress in 
every respect, others retrograding ; some hoping for a brighter 
future, the courage and enterprise of their people being aroused ; 
the absence of hope extinguishing by degrees in others all 
courage, intelligence, and enterprise. 

History is not without examples of entire nations having per- 
ished, because they knew not and seized not the critical moment 
for the solution of the great problem of securing their moral, 
economical, and political independence by the establishment of 
manufacturing industry and the formation of a powerful class 
of manufacturers and tradesmen. 

//. National Division of Labor 

Smith maintains that the division of labor is less applicable 
to agriculture than to manufacturing industry ; he has, how- 
ever, in his view, but one manufactory or but a single farm. 
He failed to extend his principle to entire districts or to whole 
provinces. In no place has the division of labor and the combi- 
nation of the productive power more influence than when eacli 
region, each province, is able to devote itself exclusively, or 
at least chiefly, to any special branch of agricultural production 



482 SELECTED READINGS IN ECONOMICS 

for which it is particularly fitted by nature. In one j)lace wheat 
and hops succeed specially ; in another, wine and fruit ; in 
another, timber and pasturage for cattle. If each region pur- 
sues the same course of cultivation at the same time, it is evi- 
dent that both labor and soil must be much less productive than 
if each make its chief crop that for which it is best suited by 
nature, exchanging severally the surplus of their special produc- 
tions for the surplus of others having like natural advantages 
for the production of food or some special raw material. This 
division of labor, this combination of the productive power em- 
ployed in agi'iculture, can be realized only in a country which 
has reached a high degree of development in all branches of 
industry, for there only can a strong demand exist for the very 
various products of agriculture ; there only can a demand for 
the surplus products of agriculture be so certain and so consid- 
erable as to insure the producer a market at a suitable price 
during the year, or at least during the following year, for the 
whole surplus of his production ; in such a country can sufficient 
capital be devoted to dealing in and providing proper storage 
for the products of the soil, such improved means of transporta- 
tion, canals, railroads, lines of steamers, well-kept highways, as 
are indispensable for the conveyance of agricultural and other 
bulky products. It is solely by the aid of a good system of 
communications that provinces near, as well as remote, can 
effect an exchange of the surplus of their respective produc- 
tions. When each province produces all it consumes there are 
few occasions of exchange, and consequently no need of expen- 
sive communications. 

Let it be noted that the increase of productive power conse- 
quent upon division of labor and upon the combination of indi- 
vidual power begins in the private manufactory, and extends, 
finally, even to national associations. Manufacturing industry 
prospers in proportion as its labor is more divided, as its labor- 
ers are more closely united, and as the cooperation of the whole 
is better secured. The productive power of each manufactory 
is greater in proportion as the whole manufacturing industry of 
the country is developed in its ramifications, and as it is itself 



1NTERNATI0^■AL TRADE 483 

more strictly connected with the other branches of manufacture. 
Agricultural power is productive likewise in proportion as agri- 
culture is more strictly united by relations at once local, com- 
mercial, and political, with a manufacturing industry complete 
in its various branches. In proportion as general industry is 
developed, the sepai-ation of the labor of agriculture and the 
combination of its productive powers take the proper form and 
arrangement ; and by these advantages it is carried to its highest 
degree of perfection. The richest nation, being that which pos- 
sesses the greatest productive power, will be of course that which, 
upon its own territory, has carried its manufactures of every 
kind to the highest degree of productiveness, and the agricul- 
ture of which furnishes its population of manufacturers with the 
chief part of the food and raw materials requisite for their wants 
and business. 

Let us now change the argument. A nation pursuing only 
agriculture and a few of the more necessary mechanical arts is 
without the first and principal division of labor among its citi- 
zens, and loses the most important half of its productive power ; 
it even wants that division of labor which is so needful in the 
operations of special branches of agriculture. A nation with an 
industry so incomplete is less productive by half than one of 
well-arranged industry ; with a territory of equal extent, or of 
even much greater extent, with an equal, or even greater, popu- 
lation, its productive power will yield perhaps scarcely a fifth, 
or even a tenth part of the material wealth which a country of 
well-arranged industry can produce ; and that for the same rea- 
son that in a complicated manufacture ten persons can produce 
not only ten times more, but perhaps thirty times more than 
one alone, just as the labor of a man who has but 07ie arm will 
not merely be one half less, but perhaps an hundredfold less 
than that of the man who lias fico arms. 

This loss of productive power must be the more sensibly felt 
as machinery is better adapted to aid manufacturing labor, and 
less applicable to agricultural labor. A part of the productive 
power thus lost by an agricultural people will go to the profit 
of the nation from which they derive manufactured articles in 



484 SELECTED READINGS IN ECONOMICS 

exchange for their crude products. Beyond this, however, there 
will be no further loss until the agricultural nation shall have 
reached that degree of civilization and political development 
necessary for the establishment of manufacturing industry. If 
it has not yet reached that degree, if it is still in a state of bar- 
barism or semicivilization, if its rural economy has not advanced 
beyond its primitive simplicity, the importation of articles of 
foreign manufacture and the exportation of its crude products 
cannot but sensibly increase each year its prosperity, as well as 
awaken and increase its intellectual and social power. If that 
commerce is not interrupted either by foreign prohibition of 
raw materials or by war, or if the territory of this merely agri- 
cultural country is situated in the torrid zone, the advantage will 
be equal and considerable on both sides, and that according to 
the nature of things ; for under the influence of such exchange 
such a nation may make greater advances and with greater secu- 
rity than if entirely left to itself. But when an agricultural 
nation has reached the highest point of its rural development, 
that is, as far as the aid of foreign trade can carry it, or if man- 
ufacturing nations decline receiving the productions of its soil 
in payment for manufactured articles, or if the active compe- 
tition of manufacturing people in the markets of an agricultural 
nation should prove an obstacle to the growth of manufactures, 
then the agriculture of the latter is exposed to the risk of being 
seriously checked. 

We regard agriculture as seriously checked when, for want 
of manufacturing consumers or a home market, all the surplus 
of the growing population is devoted to agriculture, consuming 
the whole agricultural product, emigrating at the age of man- 
hood, or dividing the land among the existing cultivators until 
the share of each family becomes so small as scarcely to yield 
sustenance for the occupants, let alone any surplus for foreign 
trade. Under a well-devised development of productive forces, 
the largest portion of the increase of the population, as soon as 
they reach a certain degree of culture, betakes itself to the manu- 
factories ; the surplus of agricultural production goes, on the 
one hand, to supply the manufacturing population with food and 



INTERNATIONAL TRADE 485 

raw materials, and on the other, enables the agriculturists to buy 
not only manufactured products but the machines and implements 
which improved farming and the increased demand for its prod- 
ucts require. 

If these relations are established at the right time, the pro- 
ductive forces, agricultural and manufacturing, aid each other 
and permit an indefinite increase. The demand for agricultural 
products on the part of the manufacturing population will be- 
come very great, but agriculture will employ only so many 
laborers and the soil will be subdivided only so far as may be 
necessary to obtain the largest possible product. The surplus of 
tliis production will be the measure of the ability of the cultiva- 
tors to consume the goods of the manufacturer. A progressive 
increase of this surplus will increase the demand for manufactur- 
ing labor. The agricultural population will continue to find vent 
for its increase in the manufactories, and the population of the 
manufactories will finally equal, if not surpass, that of the fields. 

Compare, for instance, the state of agriculture in the vicinity 
of a populous city with that in remote districts. 

The latter is applied only to commodities which bear distant 
carriage, and which cannot be had in the market for which they 
are destined at a lower price and of better quality from lands 
near the market. A considerable portion of the proceeds of sale 
is absorbed in expenses of transport. The capital expended in 
reproduction of a crop is with difficulty replaced by any disposi- 
tion which can be made of it. For want of good models and 
suitable instruction, the new processes, new implements, the 
improved modes of culture scarcely ever reach remote places. 
The laborers themselves, for want of stimulus and emulation, 
develop but feebly their productive power, and abandon them- 
selves readily to inaction and carelessness. 

In the neighborhood of a city, on tlie contrary, the cultivator 
is able to devote every field of his farm to the culture most 
appropriate to the nature of the soil, and the whole to that rota- 
tion most advantageous. He can cultivate with profit the utmost 
variety of products ; vegetables, poultry, eggs, milk, butter, fruit, 



486 SELECTED KEADING.S IN ECONOMICS 

and other articles, which the farmer remote from the market re- 
gards as insignificant incidents of his calling, yield to the labor 
of the former a large return. While the remote farmer is reduced 
to the mei'e rearing of cattle, the other is not only continually 
adding to the fertility of his land, but is making larger and con- 
tinually increasing profits : he is thus encouraged not only to 
learn but to enter upon the most improved modes of agriculture. 
A multitude of objects of little or no value to the remote farmer, 
such as stones, sand, water power, become of immense value to 
him who is in the vicinity of a large city or a populous manu- 
facturing district. Machines and implements of husbandry of 
the best kind, with ample instructions as to the best means of 
employing them, are ever at his disposal. He obtains readily the 
needful capital to improve his land. Proprietors and laborers are 
alike stimulated by the enjoyments which the city offers and 
industry places within their reach, by the emulation which it 
originates, by the facility which larger profits afford, to employ 
in the amelioration of their condition the whole of their intel- 
lectual powers. 

The same difference with similar results exists between a 
nation, on the one hand, which unites upon its own territory 
agriculture and manufacturing industry, and one which, on 
the other, exchanges its agricultural products for articles of 
foreign manufacture. 

III. Protection and Productive Forces 

A purely agricultural region in a temperate clime permits, of 
course, the best portion of its natural resources to remain 
unemployed. 

From not distinguishing between agriculture and manufac- 
turing industry in the appreciation of the influence of climate 
upon the production of wealth, the School ^ has fallen, in regard 
to the advantages and disadvantages of protective measures, into 
important errors, upon which we cannot avoid enlarging though 
we have already indicated them elsewhere in general terms. 

1 I.e. the School of Adam Smith, advocates of free trade. — Ed. 



INTERNATIONAL TRADE 487 

To prove that it would be foolish to produce everything in 
any one country, the School asks if it would be reasonable 
in England or Scotland to think of producing wine in hot- 
houses. Wine could no doubt be thus obtained, but it would 
be neither so good nor so cheap as that which England and 
Scotland can purchase by means of their manufactured products. 
For those who will not or cannot look more deeply into the real 
nature of things, the argument is plausible ; and the School 
is indebted to it for a great part of its popularity, at least 
among the proprietors of vineyards and silk manufactories in 
France as well as among planters of cotton and traders in that 
article in North America. But examined closely, the illustra- 
tion is without force, for the reason that restrictions operate in 
agriculture altogether differently from what they do in manu- 
facturing industry. 

Let us first notice their effects upon agriculture. 

Let France repel from her frontier German cattle and corn, 
and what would be the result ? First, Germany would cease to 
purchase French wines, and France would then derive so much 
less advantage from that portion of her lands which are devoted 
to the culture of wine. Fewer individuals would confine them- 
selves to that culture, and consequently a less quantity of domes- 
tic food would be required for the consumption of the cultivators 
of the vine. The same would take place respecting the produc- 
tion of oil. France would then lose much more in other branches 
of her agricultural industry than she could save in a single 
department by favoring the prohibition of cattle, which do not 
spring up spontaneously and are very likely not more advan- 
tageous for the regions in which their production is thus arti- 
ficially forced. 

Such will be the results if we regard France and Germany as 
merely agricultural countries, and if we suppose that Germany 
will not retaliate. But such a policy must appear still moie in- 
jurious if we consider that Germany, under the imperative law 
of her own interest, will also have recourse to restrictive measures, 
and that Fiance is engaged in both manufactures and agricul- 
ture. Germany would impose higher duties, not only upon wine, 



488 SELECTED EEADINGS IN ECONOMICS 

but upon other French agricultural products which she might 
produce herself, or could more or less do without, or obtain from 
other places ; moreover she would impose still heavier duties 
upon the importation of manufactures which cannot be produced 
there with benefit, but can be obtained elsewhere without re- 
course to France. Thus the damage which France would sustain 
by restriction is twice or three times more considerable than the 
advantage gained. The culture of the vine, of the olive, and 
manufacturing industry, can employ in France only as many in- 
dividuals as the food and raw materials produced or imported by 
France can nourish and supply. Now we have seen that restric- 
tions upon importation do not increase agricultural production, 
but only transfer it from one part of the country to another. 
Had a free career been left to the trade in these rival products, 
the importation of these products, and consequently the exporta- 
tion of wine, oil, and manufactured goods would have constantly 
increased, as well as the population employed in the culture of 
the vine, and of the olive, and in manufactures ; since, on the 
one hand, food and raw materials would have been received in 
always increasing quantities, and, on the other, the demand for 
their own products would have been also increasing. The in- 
crease of that population would have excited a greater demand 
for food and raw materials, articles less easily imported from 
abroad, and of which agriculture in every land possesses a natural 
monopoly ; the agriculture of the country would of course in 
these circumstances have realized still greater profits. The 
demand for such agricultural products as are suited to the soil 
of France, would, under this regime of liberty, be much greater 
than that which has been artificially created by restrictions. 
One farmer would not have lost what another has gained ; the 
whole agriculture of the country would have gained something, 
and its manufacturing industry still more. Thus restriction has 
not increased, but has rather diminished, the agricultural power 
of the country, and it has, moreover, annihilated that manu- 
facturing power which results from the development of the 
agriculture of the country and from the importation of raw 
materials from abroad. The only thing obtained by it was an 



INTEKNATIONAL TliADE 489 

increase of prices for the advantage of the cultivators of one 
place at the expense of those of another, and especiall}^ at the 
cost of the general productive power of the country. 

3. Bastiat's Criticism of Protectionism^ 
/. Ahundance — Scarcity 

Which is the best for man or for society, abundance or 
scarcity ? 

How, it may be exclaimed, can such a question be asked ? 
Has it ever been pretended, is it possible to maintain, that 
scarcity can be the basis of a man's happinesss ? 

Yes ; this has been maintained, this is daily maintained ; and 
I do not hesitate to say that the scarcity theory is by far the 
most popular of the day. It furnishes the subject of discussions 
in conversations, journals, books, courts of justice ; and extraor- 
dinary as it may appear, it is certain that political economy will 
have fulfilled its task and its practical mission wlien it shall 
have rendered common and irrefutable the simple proposition 
that " in abundance consists man's riches." 

Do we not hear it said every day, " Foreign nations are 
inundating us with their productions?" Then we fear abun- 
dance- 
Has not jNI. de Saint Cricq said, " Production is superabun- 
dant?" Then he fears abundance. 

******** 

Has not M. Bugeaud said, " Let bread be dear and the agri- 
culturist will be rich ? " Now bread can only be dear because it 
is scarce. Then M. Bugeaud lauded scarcity. 

Has not M. d'Argout produced the fruitfulness of the sugar 
culture as an argument against it? Has he not said, "The 
beet cannot have permanent and extended cultivation, because 
a few acres given up to it in each department would furnish 
sufficient for the consumption of all Fiance ? " Then, in his 

' Extracts from the translation of Bastiat's Sophisms of the Protectionists, 
edited by Horace White and published by Messrs. CJ. P. Putnam's Sons [New 
York and London]. 



490 SELECTED READINGS IN ECONOMICS 

opinion, good consists in sterility and scarcity, evil in fertility 
and abundance. 

La Presse, Le Commerce, and the majority of our journals are 
every day publishing articles whose aim is to prove to the 
chambers and to the government that a wise policy should seek 
to raise prices by tariffs ; and do we not daily see these powers 
obeying these injunctions of the press ? Now tariffs can only 
raise prices by diminishing the quantity of goods offered for 
sale. Then here we see newspapers, the legislature, the ministry, 
all guided by the scarcity theory, and I was correct in my 
statement that this theory is by far the most popular. 

A man becomes rich in proportion to the profitableness of his 
labor ; that is to say, in proportion as he sells his productions at 
a high price. The price of his productions is high in proportion 
to their scarcity. It is plain then that, as far as regards him at 
least, scarcity enriches him. Applying successively this mode 
of reasoning to each class of laborers individually, the scarcity 
theory is deduced from it. To put this theory into practice, and 
in order to favor each class of labor, an artificial scarcity is forced 
in every kind of production by prohibition, restriction, suppres- 
sion of machinery, and other analogous measures. 

In the same manner it is observed that when an article is abun- 
dant it brings a small price. The gains of the producer are, of 
course, less. If this is the case with all produce, all producers are 
then poor. Abundance then ruins society. And as any strong 
conviction will always seek to force itself into practice, we see 
in many countries the laws aiming to prevent abundance. 

This sophism, stated in a general form, would produce but a 
slight impression. But when applied to any particular order of 
facts, to any particular article of industry, to any one class of 
labor, it is extremely specious, because it is a syllogism which 
is not false, but incomplete. And what is true in a syllogism 
always necessarily presents itself to the mind, while the incom- 
plete, which is a negative quality, an unknown value, is easily 
forgotten in the calculation. 

Man produces in order to consume. He is at once producer 
and consumer. The argument given above considers him only 



lNTEK2s'ATlU^A]. TKADE 4!)1 

under the first point of view. Let us look at him in the second 
character and the conclusion will be different. We may say : 

The consumer is rich in proportion as he buys at a low price. 
He buys at a low price in proportion to the abundance of 
the article in demand ; abundance then enriclies him. This 
reasoning extended to all consumers must lead to the theory 
of abundance. 

It is the imperfectly understood notion of exchange of prod- 
uce which leads to these fallacies. If we consult our individual 
interest, we perceive immediately that it is double. As sellers 
we are interested in high prices, consequently in scarcity. As 
buyers our advantage is in cheapness, or what is the same thing, 
abundance. It is impossible then to found a proper system of 
reasoning upon either the one or the other of these separate 
interests before determining which of the two coincides and 
identifies itself with the general and permanent interests of 
mankind. 

If man were a solitary animal, working exclusively for him- 
self, consuming the fruit of his own personal labor, — if, in a 
word, he did not exchange liis produce, — the theory of scarcity 
could never have introduced itself into the world. It would be 
too strikingly evident that abundance, whencesoever derived, is 
advantageous to him, whether this abundance might be the result 
of his own labor, of ingenious tools, or of powerful machinery ; 
whether due to the fertility of the soil, to the liberality of nature, 
or to an inundation of foreign goods, such as the sea bringing 
from distaiit regions might cast upon his shores. Never would 
the solitary man have dreamed, in prder to encourage his own 
labor, of destroying his instruments for facilitating his work, of 
neutralizing the fertility of the soil, or of casting back into the 
sea the produce of its bounty. He would understand that his 
lal)or was a means, not an end, and that it would be absurd to 
reject the object in order to encourage the means. He would 
understand that if he has required two hours per day to supply 
his necessities, anything which spares him an hour of this labor, 
leaving the result the same, gives him this hour to dispose of as 
he pleases in adding to his comforts. In a word, he would 



492 SELECTED READINGS IN" ECONOMICS 

understand that every step in the saving of labor, is a step in 
the improvement of his condition. But traffic clouds our vision 
in the contemplation of this simple truth. In a state of society 
with the division of labor to which it leads, the production and 
consumption of an article no longer belong to the same indi- 
vidual. Each now looks upon his labor not as a means, but as 
an end. The exchange of produce creates with regard to each 
object two separate interests, that of the producer and that of 
the consumer; and these two interests are always directly 
opposed to each other. 

It is essential to analyze and study the nature of each. Let 
us then suppose a producer of whatever kind ; what is his im- 
mediate interest? It consists in two things : firstly, that the 
smallest possible number of individuals should devote themselves 
to the business which he follows ; and secondly, that the greatest 
possible number should seek the articles of his produce. In the 
more succinct terms of political economy, the supply should be 
small, the demand large ; or yet in other words, limited com- 
petition, unlimited consumption. 

What on the other side is the immediate interest of the con- 
sumer? That the supply should be large, the demand small. 

As these two interests are immediately opposed to each other, 
it follows that if one coincides with the general interest of 
society the other must be adverse to it. 

Which then, if either, should legislation favor as contributing 
most to the good of the community? 

To determine this question, it suffices to inquire in which 
the secret desires of the majority of men would be accomplished. 

Inasmuch as we are producers, it must be confessed that 
we haije each of us antisocial desires. Are we vine growers? 
It would not distress us were the frost to nip all the vines in 
the world except our own : this is the scarcity theory. Are we 
iron workers ? We would desire (whatever might be the public 
need) that the market should offer no iron but our own; and 
precisely for the reason that this need, painfully felt and im- 
perfectly supplied, causes us to receive a high price for our 
iron : again here is the theory of scarcity. Are we p.griculturists ? 



INTERNATIONAL TUADE 493 

We say with M. Bugeaud, let bread be dear, that is to say 
scarce, and our business goes well : again the theory of scarcity. 

Are we manufacturers of cotton goods ? We desire to sell 
them at the price most advantageous to ourselves. We would 
willingly consent to the suppression of all rival manufactories. 
And if we dare not publicly express this desire, or pursue the 
complete realization of it with some success, we do so, at least to 
a certain extent, by indirect means ; as for example, the exclu- 
sion of foreign goods, in order to diminish the qnantity offered, 
and to produce thus by forcible means, and for our own profits, 
a scarcity of clothing. 

We might thus pass in review every business and every pro- 
fession, and should always find that the producers, in their 
character of producers, have invariably antisocial interests. 

The shopkeeper [says Montaigne] succeeds in his business through the 
extravagance of youth ; the laborer by the high price of grain ; the archi- 
tect by the decay of houses; officers of justice by lawsuits and quarrels. 
The standing and occupation even of ministers of religion are drawn from 
our death and our vices. Xo physician takes jileasure in the health even of 
his friends; no soldier in the peace of his country; and so on with all. 

If then the secret desires of each producer were realized, the 
world would rapidly retrograde towards barbarism. The sail 
would proscribe steam ; the oar would proscribe the sail, only 
in its turn to give Avay to wagons, the wagon to the mule, and 
the mule to the foot peddler. Wool would exclude cotton ; cot- 
ton would exclude wool ; and thus on, until the scarcity and 
want of everything would cause man himself to disappear from 
the face of the globe. 

If we now go on to consider the immediate interest of the 
consumer, we shall find it in perfect harmony Avith the public 
interest, and with the well-being of humanity. When the buyer 
presents himself in the market he desires to find it abundantly 
furnished. He sees with pleasure propitious seasons for harvest- 
ing ; wonderful inventions putting within his reach the largest 
possible quantity of produce ; time and labor saved ; distances 
effaced ; the spirit of peace and justice diminishing the weight 



494 SELECTED READINGS IN ECONOMICS 

of taxes ; every barrier to improvement cast down ; and in all 
this his interest runs parallel with an enlightened public interest. 
He may push his secret desires to an absurd and chimerical 
height, but never can they cease to be humanizing in their tend- 
ency. He may desire that food and clothing, house and hearth, 
instruction and morality, security and peace, strength and health, 
should come to us without limit and without labor or effort on 
our part, as the water of the stream, the air which we breathe, 
and the sunbeams in which we bask, but never could the reali- 
zation of his most extravagant wishes run counter to the good 
of society. 

It may be said, perhaps, that were these desires granted, the 
labor of the producer constantly checked would end by being 
entirely arrested for want of support. But why ? Because in 
this extreme supposition every imaginable need and desire would 
be completely satisfied. Man, like the All-powerful, would 
create by the single act of his will. How in such a hypothesis 
could laborious production be regretted ? 

Imagine a legislative assembly composed of producers, of 
whom each member should cause to pass into a law his secret 
desire as a producer ; the code which would emanate from such 
an assembly could be nothing but systematized monopoly ; the 
scarcity theory put into practice. 

In the same manner, an assembly in which each member 
should consult only his immediate interest as consumer would 
aim at the systematizing of free trade ; the suppression of every 
restrictive measure ; the destruction of artificial barriers ; in a 
word, would realize the theory of abundance. 

It follows then. 

That to consult exclusively the immediate interest of the 
producer is to consult an antisocial interest. 

To take exclusively for basis the interest of the consumer, is 
to take for basis the general interest. 



I 



INTERNATIONAL TKADE 495 

11^. Eqiializimj of the Facilities of Production 

It is said . . . but, for fear of being accused of manufacturing 
sopliisms for the mouths of the protectionists, I will allow one 
of their most able reasoners to speak for himself. 

It is our belief that protection should correspond to, should be the 
representative of, the difference which exists between the price of an article 
of home production and a similar article of foreign production. ... A 
protecting duty calculated upon such a basis does nothing more than 
secure free competition ; . . . free competition can only exist where there 
is an equality in the facilities of production. In a horse race the load w hich 
each horse carries is weighed and all advantages equalized ; otherwise there 
could be no competition. In commerce, if one producer can undersell all 
others, he ceases to be a competitor and becomes a monopolist. . . . Sup- 
press the protection whicn represents the difference of i^rice according to 
each, and foreign productions must immediately inundate and obtain the 
monopoly of our market.* 

Every one ought to wish, for his own sake and for that of the commu- 
nity, that the productions of the country should be protected against foreign 
competition, whenever the latter may be able to undersell the former. - 

This argument is constantly recurring in all writings of the 
protectionist school. It is my intention to make a careful inves- 
tigation of its merits, and I must begin by soliciting the atten- 
tion and the patience of the reader. I wdll first examine into the 
inequalities which depend upon natural causes, and afterwards 
into those which are caused by diversity of taxes. 

Here, as elsewhere, we find the theorists who favor protection 
taking part with the producer. Let us consider the case of the 
unfortunate consumer, who seems to have entirely escajied their 
attention. They compare the field of production to the turf. 
But on the turf the race is at once a means and an end. The 
public has no interest in the struggle independent of the struggle 
itself. When your horses are started in the course with the 
single object of determining which is the best runner, nothing 
is more natural than that their l)urdens should be equalized. 
But if your object were to send an important and critical piece 
of intelligence, could you without incongruity place obstacles to 
the speed of that one whose fleetness would secure the best 
1 M. Le Viconite de Ronianet. - Matliieu de Douibasle. 



496 SELECTED READINGS IN ECONOMICS 

means of attaining your end ? And yet this is your course in 
relation to industry. You forget the end aimed at, which is the 
well-being of the community. 

But since we cannot lead our opponents to look at things 
from our point of view, let us now take theirs ; let us examine 
the question as producers. 

I will seek to prove 

1 . That equalizing the facilities of production is to attack the 
foundations of all trade. 

2. That it is not true that the labor of one country can be 
crushed by the competition of more favored climates. 

3. That, even were this the case, protective duties cannot 
equalize the facilities of production. 

4. That freedom of trade equalizes these conditions as much 
as possible ; and 

5. That the countries which are the least favored by nature 
are those which profit most by freedom of trade. 

1. The equalizing of the facilities of production is not only 
the shackling of certain articles of commerce, but it is the 
attacking of the system of mutual exchange in its very founda- 
tion principle. For this system is based precisely upon the very 
diversities, or, if the expression be preferred, upon the inequali- 
ties of fertility, climate, temperature, capabilities, which the pro- 
tectionists seek to render null. If Guyenne sends its wines to 
Brittany, and Brittany sends corn to Guyenne, it is because these 
two provinces are, from different circumstances, induced to turn 
their attention to the production of different articles. Is there 
any other rule for international exchanges? Again, to bring 
against such exchanges the very inequalities of condition which 
excite and explain them, is to attack them in their very cause of 
being. The protective system, closely followed up, would bring 
men to live like snails, in a state of complete isolation. In short, 
there is not one of its sophisms, which, if carried through by vig- 
orous deductions, would not end in destruction and annihilation. 

2. It is not true that the unequal facility of production in 
two similar branches of industry should necessarily cause the 
destruction of the one which is the least fortunate. On the turf, 



INTERNATIONAL TRADE 497 

if one horse gains the prize, the other loses it ; hut when two 
horses work to produce any useful article, each produces in pro- 
portion to his strength ; and because the stronger is the more 
useful, it does not follow that the weaker is good for nothing. 
Wheat is cultivated in every department of France, although 
there are great differences in the degree of fertility existing 
among them. If it happens that there be one which does not 
cultivate it, it is because, even to itself, such cultivation is not 
useful. Analogy will show us that, under the influence of an 
unshackled trade, notwithstanding similar differences, wheat 
would be produced in every kingdom of Europe ; and if any one 
were induced to abandon entirely the cultivation of it, this 
would only be because it would he her interest to employ other- 
wise her lands, her capital, and her labor. And why does not 
the fertility of one department paralyze the agriculture of a 
neighboring and less favored one? Because the phenomena of 
political economy have a suppleness, an elasticity, and, so to 
speak, a self-leveling potver, which seems to escape 'the attention 
of the school of protectionists. They accuse us of being theorists, 
but it is themselves who are theorists to a supreme degree, if 
being theoretic consists in building up systems upon the experi- 
ence of a single fact, instead of profiting by the experience of a 
series of facts. In the above example it is the difference in the 
value of lands, which compensates for the difference in their 
fertility. Your field produces three times as much as mine. 
Yes. But it has cost you three times as much, and therefore I 
can still compete with you ; this is the sole mystery. And 
obsei've how the advantage on one point leads to disadvantage 
on the other. Precisely because your soil is more fruitful, it is 
more dear. It is not accidentally/ hnt necessarilt/ that the equilib- 
rium is established, or at least inclines to establish itself ; and 
can it be denied that perfect freedom in exchanges is, of all the 
systems, the one which favors this tendency? 

I have cited an agricultural example ; I might as easily have 
taken one from any trade. There are tailors at Quimper, but 
that does not prevent tailors from being in Paris also, although 
the latter have to pay a much higher rent, as well as higher prices 



498 SELECTED READINGS IN ECONOMICS 

for furniture, workmen, and food. But their customers are suffi- 
ciently numerous not only to reestablish the balance, but also to 
make it lean on their side. 

When therefore the question is about equalizing the advan- 
tages of labor, it would be well to consider whether the natural 
freedom of exchanges is not the best umpire. 

This self-leveling faculty of political phenomena is so impor- 
tant, and at the same time so well calculated to cause us to 
admire the providential wisdom which presides over the equal- 
izing government of society, that I must ask permission a little 
longer to turn to it the attention of the reader. 

The protectionists say. Such a nation has the advantage over 
us, in being able to procure cheaply coal, iron, machinery, capi- 
tal ; it is impossible for us to compete with it. 

We must examine the proposition under other aspects. For 
the present I stop at the question, whether, when an advantage 
and a disadvantage are placed in juxtaposition, they do not bear 
in themselves, the former a descending, the latter an ascending 
power, which must end by placing them in a just equilibrium. 

Let us suppose the countries A and B. A has every advan- 
tage over B ; you thence conclude that labor will be concentrated 
upon A, while B must be abandoned. A, you say, sells much 
more than it buys ; B buys more than it sells. I might dispute 
this, but I will meet you upon your own ground. 

In the hypothesis, labor, being in great demand in A, soon 
rises in value ; while labor, iron, coal, lands, food, capital, all 
being little sought after in B, soon fall in price. 

Again, A being always selling and B always buying, cash 
passes from B to A. It is abundatit in A, very scarce in B. 

But where there is abundance of cash it follows that in all 
purchases a large proportion of it will be needed. Then in 
A real dearness, which proceeds from a very active demand, is 
added to nominal dearness, the consequence of a superabun- 
dance of the precious metals. 

Scarcity of money implies that little is necessary for each 
purchase. Then in B a nominal cheapness is combined with 
real cheapness. 



INTEKNATK^NAL TRADE 499 

Under these ciivumstances imlustry avIU liave the strongest 
possible motives for deserting A to establish itself in B. 

Now to return to what would be the true course of things. 
As the progress of such events is always gradual, industr}- from 
its nature being opposed to sudden transits, let us suppose that, 
without waiting the extreme point, it will have gradually divided 
itself between A and B, according to the laws of supply and 
demand ; that is to say, according to the laws of justice and 
usefulness. 

I do not advance an empty hypothesis when I say that, Avere 
it possible that industry should concentrate itself upon a single 
point, there must, from its nature, arise spontaneously, and in 
its midst, an irresistible power of decentralization. 

We will quote the words of a manufacturer to the Chamber 
of Commerce at ]\Ianchester (the figures brought into his demon- 
stration are suppressed): 

Formerly we exported goods ; this exportation gave way to that of 
thread for the manufacture of goods ; later, instead of thread, we exported 
machinery for the making of thread; then capital for the construction of 
machinery ; and lastly, workmen and talent, which are the source of capi- 
tal. All these elements of labor have, one after the other, transferred 
theinselves to other points, where their profits were increased, and where 
the means of subsistence being less difficult to obtain, life is maintained at 
a less cost. There are at present to be seen in Prussia, Austria, Saxony, 
Switzerland, and Italy, immense manufacturing establishments, founded 
entirely by English capital, worked by English labor, and directed by 
English talent. 

We may here perceive that nature, or rather Providence, 
with more wisdom and foresight than the narrow rigid system 
of the protectionists can suppose, does not permit the concen- 
tration of labor, the monopoly of advantages, from which they 
draw their arguments as from an absolute and irremediable 
fact. It has, b}- means as simple as they are infallible, provided 
for dispersion, diffusion, mutual dependence, and simultaneous 
])rogress; all of which your restrictive laws paralyze as much 
as is in their power by their tendency towards the isolation of 
nations. By this means they render much more decided the 
differences existing in the conditions of production ; they check 



500 SELECTED READINGS IN ECONOMICS 

the self-leveling power of industry, prevent fusion of interests, 
and fence in each nation within its own peculiar advantages and 
disadvantages. 

3. To say that by a protective law the conditions of produc- 
tion are equalized, is to disguise an error under false terms. It 
is not true that an import duty equalizes the conditions of pro- 
duction. These remain after the imposition of the duty just as 
they were before. The most that the law can do is to equalize 
the conditions of sale. If it should be said that I am playing 
upon words, I retort the accusation upon my adversaries. It is 
for them to prove tha,t production and sale are synonymous terms, 
which if they cannot do, I have a right to accuse them, if not 
of playing upon words, at least of confounding them. 

Let me be permitted to exemplify my idea. 

Suppose that several Parisian speculators should determine 
to devote themselves to the production of oranges. They know 
that the oranges of Portugal can be sold in Paris at ten centimes, 
while on account of the boxes, hothouses, etc., which are neces- 
sary to ward against the severity of our climate, it is impossible 
to raise them at less than a franc apiece. They accordingly de- 
mand a duty of ninety centimes upon Portugal oranges. With 
the help of this duty, say they, the conditions of production 
will be equalized. The legislative body, yielding as usual to 
this argument, imposes a duty of ninety centimes upon each 
foreign orange. 

Now I say that the relative conditions of production are in no 
wise changed. The law can take nothing from the heat of the 
sun in Lisbon, nor from the severity of the frosts in Paris. 
Oranges continuing to mature themselves naturally on the 
banks of the Tagus, and artificially upon those of the Seine, 
must continue to require for their production much more labor 
on the latter than on the former. The law can only equalize 
the conditions of sale. It is evident that while the Portuguese 
sell their oranges at a franc apiece, the ninety centimes which 
go to pay the tax are taken from the French consumer. Now 
look at the whimsicality of the result. Upon each Portuguese 
orange the country loses nothing ; for the ninety centimes which 



lis' TERN ATIONAL TRADE 501 

the consumer pays to satisfy the tax enter into the treasury. 
There is improper distribution, but no loss. Upon each French 
orange consumed there will be about ninety centimes lost ; for 
while the buyer very certainly loses them, the seller just as cer- 
tainly does not gain them, for even according to the hypothesis, 
he will receive only the price of production. I will leave it to 
tlie protectionists to draw their conclusion. 

4. I have laid some stress upon this distinction between the 
conditions of production and those of sale, which perhaps the 
protectionists may consider as paradoxical, because it leads me 
on to what they will consider as a still stranger paradox. This 
is, If you really wish to equalize the facilities of production, leave 
trade free. 

This may surprise the protectionists ; but let me entreat them 
to listen, if it be only through curiosity, to the end of my argu- 
ment. It shall not be long. I will now take it up where we left off. 

If we suppose for the moment that the common and daily 
profits of each Frenchman amount to one franc, it will indis- 
putably follow that to produce an orange by direct labor in 
France, one day's work, or its equivalent, will be requisite ; 
while to produce the cost of a Portuguese orange, only one 
tenth of this day's labor is required ; which means simply this, 
that the sun does at Lisbon what labor does at Paris. Now is it 
not evident that if I can produce an orange, or, what is the 
same thing, the means of buying it, with one tenth of a day's 
labor, I am placed exactly in the same position as the Portu- 
guese producer himself, excepting the expense of the transpor- 
tation ? It is then certain that freedom of commerce equalizes 
the conditions of production direct or indirect, as much as it is 
possible to equalize them ; for it leaves but the one inevitable 
difference, that of transportation. 

I will add that free trade equalizes also the facilities for 
attaining enjoyments, comforts, and general consumption ; the 
last an object which is, it would seem, quite forgotten, and 
which is nevertheless all important, since consumption is the 
main object of all our industrial efforts. Thanks to freedom of 
trade, we would enjoy here the results of the Portuguese sun, 



502 SELECTED KEADINGS IN ECONOMICS 

as well as Portugal itself ; and the inhabitants of Havre would 
have in their reach, as well as those of London, and with the 
same facilities, the advantages which nature has in a mineralog- 
ical point of view conferred upon Newcastle. 

6. The protectionists may suppose me in a paradoxical humor, 
for I go farther still. I say, and I sincerely believe, that if any 
two countries are placed in unequal circumstances as to advan- 
tages of production, that one of the two which is the least favored 
hy nature will gain most hy freedom of commerce. To prove this 
I shall be obliged to turn somewhat aside from the form of 
reasoning which belongs to this work. I will do so, however; 
first, because the question in discussion turns upon this point ; 
and again, because it will give me the opportunity of exhibiting 
a law of political economy of the highest importance, and which, 
well understood, seems to me to be destined to lead back to this 
science all those sects which, in our days, are seeking in the 
land of chimeras that social harmony which they have been 
unable to discover in nature. I speak of the law of consump- 
tion, which the majority of political economists may well be 
reproached with having too much neglected. 

Consumption is the eyid, the final cause, of all the phenomena 
of political economy, and consequently in it is found their final 
solution. 

No effect, whether favorable or unfavorable, can be confined 
permanently to the producer. The advantages and the disad- 
vantages, which, from his relations to nature and to society, are 
his, both equally pass gradually from him, with an almost insen- 
sible tendency to be absorbed and fused into the community at 
large: the community considered as consumers. This is an 
admirable law, alike in its cause and its effects, and he who 
shall succeed in making it well understood will have a right to 
say, " I have not, in my passage through the world, forgotten to 
pay my tribute to society." 

Every circumstance which favors the work of production is 
of course hailed with joy by the producer, for its immediate 
effect is to enable him to render greater services to the com- 
munity, and to exact from it a greater remuneration. Every 



JNTEIIXATIONAL TRADE 508 

circumstance which injures production must equally be the 
source of uneasiness to him ; for its Imnu'iUaie effect is to di- 
minish his services, and consequently his remuneration. This is 
a fortuuate aud necessary law of nature. The inmiediate good 
or evil of favorable or unfavorable circumstances must fall upon 
the i^roducer, in order to influence him invincibly to seek the 
one and to avoid the other. 

Again, when a workman succeeds in his labor the immediate 
benefit of this success is received by him. This again is neces- 
sary to determine him to devote his attention to it. It is also 
just ; because it is just that an effort crowned with success 
should bring its own reward. 

But these effects, good and bad, although permanent in them- 
selves, are not so as regards the producer. If they had been so, 
a principle of progressive and consequently infinite inequality 
would have been introduced among men. This good, and this 
evil, both therefore pass on, to become absorbed in the general 
destinies of humanity. 

How does this come about? I will try to make it understood 
by some examples. 

Let us go back to the thirteenth century. Men who gave 
themselves up to the business of copying received for this 
service a retmineratio)i regulated hy the general rate of profits. 
Among them is found one who seeks and finds the means of 
nmltiplying rapidly copies of the same work. He invents print- 
ing. The first effect of this is, that the individual is enriched, 
while many more are impoverished. At the first view, wonder- 
ful as the discovery is, one hesitates in deciding whether it is 
not more injurious than useful. It seems to have introduced 
into the world, as I said above, an element of infinite inequality. 
Gutenberg makes large profits by this invention, and perfects 
the invention by the profits, until all other copyists are ruined. 
As for the public, — the consumer, — it gains but little, for 
Gutenberg takes care to lower the price of books only just so 
much as is necessary to undersell all rivals. 

But the great Mind which put harmony into the movements 
of celestial bodies could also give it to the internal mechanism 



504 SELECTED EEADIKGS IN ECONOMICS 

of society. We will see the advantages of this invention escap- 
ing from the individual to become forever the common patri- 
mony of mankind. 

The process finally becomes known. Gutenberg is no longer 
alone in his art ; others imitate him. Their profits are at first 
considerable. They are recompensed for being the first who 
make the effort to imitate the processes of the newly invented 
art. This again was necessary, in order that they might be 
induced to the effort, and thus forward the great and final 
result to which we approach. They gain much ; but they gain 
less than the inventor, for competition has commenced its work. 
The price of books now continually decreases. The gains of the 
imitators diminish in proportion as the invention becomes older ; 
and in the same proportion imitation becomes less meritorious. 
Soon the new object of industry attains its normal condition ; 
in other words, the remuneration of printers is no longer an 
exception to the general rules of remuneration, and, like that 
of copyists formerly, it is only regulated hy the general rate of 
profits. Here then the producer, as such, holds only the old 
position. The discovery, however, has been made ; the saving of 
time, labor, effort, for a fixed result, for a certain number of vol- 
umes, is realized. But in what is this manifested ? In the cheap 
price of books. For the good of whom ? For the good of the con- 
sumer — of society — of humanity. Printers, having no longer 
any peculiar merit, receive no longer a peculiar remuneration. 
As men, as consumers, they no doubt participate in the advan- 
tages which the invention confers upon the community; but 
that is all. As printers, as producers, they are placed upon the 
ordinary footing of all other producers. Society pays them for 
their labor, and not for the usefulness of the invention. That 
has become a gratuitous benefit, a common heritage to mankind. 

What has been said of printing can be extended to every 
agent for the advancement of labor ; from the nail and the 
mallet up to the locomotive and the electric telegraph. Society 
enjoys all, by the abundance of its use, its consumption ; and 
it enjoys all gratuitously. For as their effect is to diminish 
prices, it is evident that just so much of the price as is taken 



J 



INTERNATIONAL TRADE 505 

off by their intervention renders the production in so far gratu- 
itous. There only remains the actual labor of man to be paid 
for ; and the remainder, which is the result of the invention, is 
subtracted ; at least after the invention has run through the 
cycle which I have just described as its destined course. I 
send for a workman ; he brings a saw with him ; I pay him two 
francs for his day's labor, and he saws me twenty-five boards. 
If the saw had not been invented, he would perhaps not have 
been able to make one board, and I would have paid him the 
same for his day's labor. The usefulness then of the saw is for 
me a gratuitous gift of nature, or rather it is a portion of the 
inheritance which, in common with my brother-men, I have 
received from the genius of my ancestors. I have two work- 
men in my field ; the one directs the handle of a plow, the 
other that of a spade. The result of their day's labor is very 
different, but the price is the same, because the remuneration 
is proportioned, not to the usefulness of the result, but to the 
effort, the labor, given to attain it. 

I invoke the patience of the reader, and beg him to believe 
that I have not lost sight of free trade : I entreat him only to 
remember the conclusion at which I have arrived : Remunera- 
tion is not proportioned to the usefulness of the articles brought 
by the producer into the market, but to the labor} 

I have so far taken my examples from human inventions, but 
will now go on to speak of natural advantages. 

In every article of production nature and man must concur. 
But the portion of nature is always gratuitous. Only so much 
of the usefulness of an article as is the result of human labor 
becomes the object of mutual exchange, and consequently of 
remuneration. The remuneration varies much, no doubt, in 
proportion to the intensity of the labor, of the skill which 
it requires, of its being apropos to the demand of the day, 
of the need which exists for it, of the momentary absence of 
competition, etc. But it is not the less true in principle, that 

1 It is true that labor does not receive a uniform remuneration ; because 
labor is more or less intense, dangerous, skillful, etc. Competition establishes 
for each category a price current ; and it is of this variable price that I speak. 



506 SELECTED READINGS IN ECONOMICS 

the assistance received from natural laws, which belongs to all, 
counts for nothing in the price. 

We do not pay for the air we breathe, although so useful to 
us that we could not live two minutes without it. We do not 
pay for it, because nature furnishes it without the intervention 
of man's labor. But if we wish to separate one of the gases 
which compose it, for instance to fill a balloon, we must take 
some trouble and labor ; or if another takes it for us, we must 
give him an equivalent in something which will have cost us 
the trouble of production. From which we see that the exchange 
is between troubles, efforts, labors. It is certainly not for 
hydrogen gas that I pay, for this is everywhere at my disposal, 
but for the work that it has been necessary to accomplish in 
order to disengage it; work which I have been spared, and 
which I must refund. If I am told that there are other things 
to pay for, — as expense, materials, apparatus, — I answer that 
still in these things it is the work that I pay for. The price of 
the coal employed is only the representation of the labor neces- 
sary to dig and transport it. 

We do not pay for the light of the sun, because nature alone 
gives it to us. But we pay for the light of gas, tallow, oil, wax, 
because here is labor to be remunerated ; and remark, that it is 
so entirely labor and not utility to which remuneration is pro- 
portioned, "that it may well happen that one of these means of 
lighting, while it may be much more effective than another, 
may still cost less. To cause this, it is only necessary that less 
human labor should be required to furnish it. 

When the water carrier comes to supply my house, were I to 
pay him in proportion to the absolute utility of the water, my 
whole fortune would not be sufficient. But I pay him only for 
the trouble he has taken. If he lequires more, I can get others 
to furnish it, or finally go and get it myself. The water itself 
is not the subject of our bargain, but the labor taken to get the 
water. This point of view is so important, and the consequences 
that I am going to draw from it so clear, as regards the freedom 
of international exchanges, that I will still elucidate my idea 
by a few more examples. 



1^'TE1^NAT1()XAL TRADE 507 

The alimentary substance contained in potatoes does not 
cost us very dear, because a great deal of it is attainable with 
little work. We pay more for wheat, because to produce it 
nature requires more labor from man. It is evident that if 
nature did for the latter what she does for the former, their 
prices would tend to the same level. It is impossible that the 
producer of wheat should permanently gain more than the pro- 
ducer of potatoes. The law of competition cannot allow it. 

If by a happy miracle the fertility of all arable lands were to 
be increased, it would not be the agriculturist, but the con- 
sumer, who would profit by this phenomenon ; for the result of 
it would be abundance and cheapness. There would be less 
labor incorporated into an acre of grain, and the agriculturist 
would be therefore obliged to exchange it for a less labor incor- 
porated into some other article. If, on the contrary, the fertility 
of the soil were suddenly to deteriorate, the share of nature in 
production would be less, that of labor greater, and the result 
would be higher prices. I am right then in saying that it is in 
consumption, in mankind, that at length all political phenomena 
find their solution. As long as we fail to follow their effects to 
this point, and look only at immediate effects, which act but 
upon individual men or classes of men as producers^ we know 
nothing more of political economy than the quack does of 
medicine, when, instead of following the effects of a prescrip- 
tion in its action upon the whole system, he satisfies himself 
with knowing how it affects the palate and the throat. 

The tropical regions are very favorable to the production of 
sugar and coffee ; that is to say, nature does most of the busi- 
ness and leaves but little for labor to accomplish. But who 
reaps the advantage of this liberality of nature? Not these 
regions, for they are forced by competition to receive simply 
remuneration for their labor. It is mankind that is the gainer; 
for the result of this liberality is cheapness, and cheapness 
belongs to the world. 

Here in the temperate zone we find coal and iron ore on the 
surface of the soil; we liave but to stoop and take then). At 
first, I grant, the inimediate inlialntants profit by this fortunate 



508 SELECTED READINGS IN ECONOMICS 

circumstance. But soon comes competition, and the price of 
coal and iron falls, until this gift of nature becomes gratuitous 
to all, and human labor is only paid according to the general 
rate of profits. 

Thus natural advantages, like improvements in the process 
of production, are, or have a Constant tendency to become, 
under the law of competition, the common and gratuitous 
patrimony of consumers, of society, of mankind. Countries 
therefore which do not enjoy these advantages, must gain by 
commerce with those which do ; because the exchanges of com- 
merce are between labor and labor; subtraction being made of 
all the natural advantages which are combined with these 
labors; and it is evidently the most favored countries which 
can incorporate into a given labor the largest proportion of 
these natural advantages. Their produce representing less 
labor receives less recompense ; in other words, is cheaper. If 
then all the liberality of nature results in cheapness, it is evi- 
dently not the producing but the consuming country which 
profits by her benefits. 

Hence we may see the enormous absurdity of the consuming 
country which rejects produce precisely because it is cheap. It 
is as though we should say : " We will have nothing of that 
which nature gives you. You ask of us an effort equal to two, 
in order to furnish ourselves with articles only attainable at 
home by an effort equal to four. You can do it because with 
you nature does half the work. But we will have nothing to 
do with it ; we will wait till your climate, becoming more inclem- 
ent, forces you to ask of us a labor equal to four, and then we 
can treat with you upon an equal footing.'''' 

A is a favored country ; B is maltreated by nature. Mutual 
traffic then is advantageous to both, but principally to B, 
because the exchange is not between utility and utility^ but 
between value and value. Now A furnishes a greater utility in 
a similar value, because the utility of any article includes at 
once what nature and what labor have done ; whereas the 
value of it corresponds only to the portion accomplished by 
labor. B then makes an entirely advantageous bargain ; for by 



1 



INTERNATIONAL TKADE 509 

simply paying the producer from A for his Labor, it receives in 
return not only the results of that labor, but in addition there 
is thrown in whatever may have accrued from the superior 
bounty of nature. 

We will lay down the general rule. 

Traffic is an exchange of values ; and as value is reduced by 
competition to the simple representation of labor, traffic is the 
exchange of equal labors. Whatever nature lias done towards 
the production of the articles exchanged, is given on both sides 
gratuitously ; from whence it necessarily follows, that the most 
advantageous commerce is transacted with those countries 
which are the most favored by nature. 

Vll. Petition from the Manufacturers of Candles, Wax Lir/hts, 

Lamps, Chandeliers, Reflectors, Snuffers, Mrtiuf/uishers ; and 

from the Producers of Tallow, Oil, Resin, Alcohol, and 

generally of Everything used for Lights 

To the Honorable the Members of the Chamber of Deputies : 

Gentlemen, — You are in the right way : you reject abstract theories ; 
abundance, cheapness, concerns you little. You are entirely occupied 
with the interest of the producer, whom you are anxious to free from 
foreign competition. In a word, you wish to secure the national market to 
national labor. 

We come now to offer you an admirable opportunity for the application 
of your — what shall we say? your theory? no, nothing is more deceiving 
than theory; — your doctrine? your system? your principle? But you do 
not like doctrines; you hold systems in horror; and, as for principles, you 
declare that there are no such things in political economy. We will say, 
tlien, your practice ; your practice without theory, and without principle. 

We are subjected to the intolerable competition of a foreign rival, who 
enjoys, it would seem, such superior facilities for the production of light, 
that he is enabled to inundate our national market at so exceedingly reduced 
a price, that, the moment he makes his appearance, he draws off all custom 
for us ; and tlius an important branch of French industry, with all its 
innumerable ramifications, is suddenly reduced to a state of complete 
stagnation. Tliis rival, who is no other than the sun, carries on so bitter 
a war against us, that we have every reason to believe that he has been 
excited to this course by our perfidious neighbor Kiigland. (CJood diplo- 
macy this, for the present time !) In this belief we are confirmed by the 



510 SELECTED READINGS IN ECONOjMICS 

fact that ill all his transactions with that proud island, he is much more 
moderate and careful than with us. 

Our petition is, that it would please your honorable body to pass a law 
whereby shall be directed the shutting up of all windows, dormers, skylights, 
shutters, curtains, vasistas, ceil-de-bceufs, in a word, all openings, holes, 
chinks, and fissures through which the light of the sun is used to penetrate 
into our dwellings, to the prejudice of the profitable manufactures which we 
flatter ourselves we have been enabled to bestow upon the country ; which 
country cannot, therefore, without ingratitude, leave us now to struggle un- 
protected through so unequal a contest. 

We pray your honorable body not to mistake our petition for a satire, 
nor to repulse us without at least hearing the reasons which we have to ad- 
vance in its favor. 

And first, if, by shutting out as much as possible all access to natural 
light, you thus create the necessity for artificial light, is there in France an 
industrial pursuit which will not, through some connection with this im- 
portant object, be benefited by it ? 

If more tallow be consumed, there will arise a necessity for an increase of 
cattle and sheep. Thus artificial meadows must be in greater demand ; and 
meat, wool, leather, and, above all, manure, this basis of agricultui'al riches, 
must become more abundant. 

If more oil be consumed, it will cause an increase in the cultivation of 
the olive tree. This plant, luxuriant and exhausting to the soil, will come 
in good time to profit by the increased fertility which tlie raising of cattle 
will have communicated to our fields. 

Our heaths will become covered with resinous trees. Numerous swarms 
of bees will gather upon our mountains the perfumed treasures which are 
now cast upon the winds, useless as the blossoms from which they emanate. 
There is, in short, no branch of agriculture which would not be greatly 
developed by the granting of our petition. 

Navigation would equally profit. Thousands of vessels would soon be 
employed in the whale fisheries, and thence would arise a navy capable of 
sustaining the honor of France, and of responding to the patriotic sentiments 
of the undersigned petitioners, candle merchants, etc. 

But what words can express the magnificence which Paris will then ex- 
hibit ! Cast an eye upon the future and behold the gildings, the bronzes, 
the magnificent crystal chandeliers, lamps, reflectors, and candelabra, which 
will glitter in the spacious stores, compared with which the splendor of the 
present day will appear trifling and insignificant. 

There is none, not even the poor manufacturer of resin in the midst of 
his pine forest, nor the miserable miner in his dark dwelling, but who 
would enjoy an increase of salary and of comforts. 

Gentlemen, if you will be pleased to reflect, you cannot fail to be 
convinced that there is perhaps not one Frenchman, from the opulent 



i.ntei::national trade 511 

stockholder of Anzin down to the poorest vender of matches, who is not 
interested in the succesa of our petition. 

We foresee your objections, gentlemen ; but there is not one that you can 
oppose to us which you will not be obliged to gather from the works of the 
partisans of free trade. We dare cliallenge you to pronounce one word 
against our petition, which is not etiually opposed to your own practice and 
the principle which guides your policy. 

Do you tell us, that if we gain by this protection, France will not gain, 
because the consumer must pay the price of it ? 

We answer you : 

You have no longer any right to cite the interest of the consumer. For 
whenever this has been found to compete with that of the producer, you 
have invariably sacrificed the first. You have done this to encouraf/e labor, 
to increase the demand for labor. The same reason should now induce you 
to act in the same manner. 

You have yourselves already answered the ol)jection. When you were 
told, The consumer is interested in the free introduction of iron, coal, corn, 
wheat, cloths, etc., your answer was, Yes, but the producer is interested 
in tiieir exclusion. Thus, also, if the consumer is interested in the admission 
of light, we, the producers, pray for its interdiction. 

You have also said, the producer and the consumer are one. If the 
manufacturer gains by protection, he will cause the agriculturist to gain 
also ; if agriculture prospers, it opens a market for manufactured goods. 
Thus we, if you confer upon us the monopoly of furnishing light during 
the day, will as a first consequence buy large quantities of tallow, coals, oil, 
resin, wax, alcohol, silver, iron, bronze, crystal, for the supply of our busi- 
ness ; and then we and our numei'ous contractors having become rich, our 
consumption will be great, and will become a means of contributing to the 
comfort and competency of the workers in every branch of national labor. 

Will you say that the light of the sun is a gratuitous gift, and that to 
repulse gratuitous gifts is to repulse riches under pretense of encouraging 
the means of obtaining them? 

Take care, — you carry the death blow to your own policy. Remember 
that hitherto you have always repulsed foreign produce because it was an 
approach to a gratuitous gift, and the innre in proportion as this approach 
was more close. Y''ou have, in obeying the wishes of other monopolists, acted 
only from a hcdf-motire ; to grant our petition there is a much fuller induce- 
ment. To repulse us, precisely for the reason that our case is a more com- 
l>lete one than any which have preceded it, would be to lay down the following 
equation : -f x + = — ; in other words, it would be to accunmlate 
absurdity upon absurdity. 

Labor ami nature concur in different proportions, according to country 
and climate, in every article of production. The portion of nature is always 
gratuitous; that of labor alone regulates the j)rice. 



512 SELECTED READINGS IN ECONOMICS 

If a Lisbon orange can be sold at half the price of a Parisian one, it is 
because a natural aftd gratuitous heat does for the one what the other only 
obtains from an artificial and consequently expensive one. 

When, therefore, we purchase a Portuguese orange, we may say that we 
obtain it half gratuitously and half by the right of labor ; in other words, 
at half price compared with those of Paris. 

Now it is precisely on account of this demi-gratuity (excuse the word) 
that you argue in favor of exclusion. How, you say, could national labor 
sustain the competition of foreign labor, when the first has everything to 
do, and the last is rid of half the trouble, the sun taking the rest of the 
business upon himself ? If then the demi-gratuity can determine you to check 
competition, on what principle can the entire gratuity be alleged as a reason 
for admitting it V You are no logicians if, refusing the demi-gratuity as 
hurtful to human labor, you do not a fortiori, and with double zeal, reject 
the full gratuity. 

Again, when any article, as coal, iron, cheese, or cloth, comes to us from 
foreign countries with less labor than if we produced it ourselves, the differ- 
ence in price is a gratuitous gift conferred upon us ; and the gift is more or 
less considerable, according as the difference is greater or less. It is the 
quarter, the half, or the three quarters of the value of the produce, in pro- 
portion as the foreign merchant requires the three quarters, the half, or the 
quarter of the price. It is as complete as possible when the producer offers, 
as the sun does with light, the whole in free gift. The question is, and we 
put it formally, whether you wish for France the benefit of gratuitous con- 
sumption, or the supposed advantages of laborious production. Choose, but 
be consistent. And does it not argue the greatest inconsistency to check, as 
you do the importation of coal, iron, cheese, and goods of foreign manu- 
facture, merely because and even in proportion as their price approaches 
zero, while at the same time you freely admit, and without limitation, the 
light of the sun, whose price is during the whole day at zero ? 



CHAPTER XVIII 

THE DISTRIBUTION OF WEALTH 

1. Present Work and Present Wages ^ 

The work of to-day and the output of to-day go together. 
Taking a survey of the varied activity of a great civilized com- 
munity, let us see what the laborers now do and what they now 
produce. Evidently the most diverse things. Some laborers are 
at work in mines digging out ore and coal. Others are at work 
conveying coal and ore, which had been brought out days or 
weeks before, to the spot where they are to be used. Others, 
again, at that spot are engaged in converting materials of still 
earlier extraction into pig iron. Elsewhere men are at work 
fashioning tools and machinery from iron and steel ; or using 
the tools or machinery for spinning or weaving ; or making up 
cloth into garments wherewith to protect us from cold and 
wet, and to satisfy our vanity or caprice. Or, to take another 
phase of production: at the moment when some laborers are at 
work digging out ore and coal, and others are transforming ore 
and coal of earlier extraction into iron, trees are felled at one 
spot, timber hewn and sawed and fashioned at another ; plows 
are made of wood and iron, fields are tilled, grain is in process 
of transportation from granary to mill, other grain is ground 
into flour, flour is carried to the bakery, — bread, finally, is 
baked and sold. 

We naturally picture the various sorts of productive effort, 
as they have just been sketched, as taking place in succession : 
the ore is first dug, the plows then made, the field next tilled, 
the bread comes at the end. In fact, looking at the work 
and the output of to-day, these operations are all taking place 

^ By F. W. Taussig. Ueprinted, by consent, from Taussig's "Wages and Cai>- 
ital. Copyriglit, 1896, by D. Appietun «&. Company. 

613 



514 SELECTED READINGS IN ECONOMICS 

simultaneously. If we follow the history of a loaf of bread or a 
suit of clothes, we find them to be the outcome of a succession 
of efforts, stretching back a considerable time in the past. But if 
we take a section, so to speak, of what the world is now doing 
and now getting, we find that at any one moment all these 
various sorts of work are being done together, and all the 
various forms of wealth, from ore to bread, are being made 
simultaneously. 

It was suggested long ago that production can be best de- 
scribed as the creation of utilities. Human effort cannot add or 
subtract an atom of the matter of the universe. It can only 
shift and move matter so as to make it serve man's wants, — 
make it useful, or create utilities in it. Matter reaches the 
stage of complete utility when it is directly available for satis- 
fying our wants ; when it is bread that we can eat, clothes that 
we can wear, houses from which we can secure shelter and 
enjoyment. The object of all production is to bring matter to 
this stage ; or, to be more accurate, to yield utilities, whether 
embodied in matter or not, which give immediate satisfaction. 
But a great part of our wealth — indeed much the greater part 
of it — consists of things which are but partly advanced toward 
the final satisfaction of our wants. Consider the enormous 
quantities of commodities which are bought and sold, and 
which constitute huge items in the wealth of the community, 
in the form of plant and materials : coal and iron and steel, 
wool and cotton and grain, factories and warehouses, railways 
and ships, and all the infinite apparatus of production that 
exists in the civilized countries of our day. All this is inchoate 
wealth. It serves as yet not to satisfy a single human want. 
It is not good to eat, nor pleasant to wear, nor agreeable to look 
on, nor in any way a direct source of enjoyment ; unless, indeed, 
we make exceptions of the kind that prove the rule, for the 
cases where ships and railways are used for pleasure journeys, 
cotton soothes a burn, and grain yields the pleasure of feed- 
ing a household pet. Virtually all the utilities embodied in 
such commodities are inchoate. These things, or others made 
by their aid, will in the future bring enjoyment ; but for the 



THE DTSTT^lliUTION OF W HALTH 515 

present they satisfy no need and yield no pleasure. We are 
so habituated to the regime of exchange and sale, and to the 
continuous disposal of these forms of wealtli by their owners for 
cash wherewith anything and everytliing can be bought, that 
we think of them ordinarily in terms of money value, and reckon 
them as equivalent to the possession of so much completed and 
enjoyable wealth. But, obviously, for the community as a whole, 
there is on hand at any given time a great mass of inchoate 
wealth which as yet can satisfy no want. And at any given 
time a great part of the labor of the community is devoted to 
making inchoate wealth, of which no part is directly of use or 
pleasure to any human being. 

On the other hand, part of the labor of to-day is given to the 
close and immediate satisfaction of our wants. The baker bakes 
bread, the tailor makes clothes. The shopkeeper sells us things 
necessary or convenient or agreeable, and so brings them to the 
point where they finally meet our desires. The servant waits on 
our needs or contributes to our ease. In a multitude of direc- 
tions it is the housewife through whom the last stage toward 
satisfaction is reached. Her labors have been celebrated less 
by economists than by poets ; yet they play a very large part in 
that final activity through which a long series of past efforts is 
at last brought to fruition. 

Compare now for a moment these tw^o things : on the one 
hand, that part of the work of to-day which is given to inchoate 
wealth or uncompleted utilities ; on the other hand, that part 
which serves directly to give satisfaction. Clearly the former is 
much the larger in volume. It must be remembei'ed that com- 
modities serve to give real satisfaction only when they reach the 
hands of those who use and enjoy them. That iron and stone, 
factories and furnaces, raw wool and cotton, grain in the bin, 
are not available for use or consumption, is obvious enough. It 
is equally certain, though not so obvious, that flour and cloths 
and boots are no more available when simply carried to the 
stage of completion in the mill or factory. To reach the con- 
sumer they must first pass through the hands of one or two 
carriers and two or three sets of middlemen, whose labors form 



616 SELECTED KEADINGS IK ECOKOMICS 

part of the operation of production quite as much as those of 
the tillers of the soil and the workers in the factories. It is 
hardly worth while to lay down any hard-and-fast line in mat- 
ters of this sort, or to try to define with precision where the 
very last step comes which brings completion of the products, 
and so satisfaction to the body of consumers. Ordinarily this 
stage would not be reached until the goods had been disposed 
of to purchasers by the retail dealer. While in the shopkeeper's 
hands, arranged by him and cared for by him, kept and stored 
in supply large enough and varied enough to meet regular and 
irregular demands, they are still to be considered as possessing 
only inchoate utility. Under the conditions of a complicated 
division of labor, those workers whom in common speech we 
call producers, as distinguished from the merchants and traders, 
advance matters a step nearer the end, but usually bring noth- 
ing to fruition. The small producer who deals directly with the 
consumer has not indeed disappeared ; but in the communities 
of advanced civilization the consumer satisfies most of his wants 
by going to a shop where he finds commodities that have left 
the factory weeks or months before. The stores of goods that 
are accumulated in the warehouses of merchants, both of the 
large dealers and the petty tradesmen, are still on their way to 
completion, and still form part of the great mass of inchoate 
wealth. And, to repeat, this mass of inchoate wealth, in any 
moment, forms much the largest part of the possessions of the 
community. 

It follows that most of the work which is being done at a 
given moment is work of no immediate service to any one. A 
few laborers are engaged in putting the finishing touches to com- 
modities on which a complicated series of other laborers have 
been at work for years, or even decades, in the past. These few 
alone work to supply our immediate wants. The great mass of 
workers are engaged in producing tools, materials, railways, 
factories, goods finished but not yet in the place where the 
consumer can procure them — inchoate wealth of all sorts. 

All this is part of the division of labor ; it is, in fact, the 
most important form of the division of labor. While a few men 



■ 



THE DISTRIBUTION OF WEALTH 517 

put the finishing touches, the great mass are busy with prepara- 
tory work which is parceled out among tliem in an infinity of 
trades and occupations. It is conceivable that some such appor- 
tionment of labor might have developed without a correspond- 
ing division of the different stages among different individuals. 
The same man might first mine the ore, then smelt it, then 
fashion his tool, then use it, and finally make his own clothing 
or secure his own food. But historically, the process by which 
so preponderant a part of the labor going on at any one moment 
has been devoted to preparatory work or inchoate wealth has 
been accompanied by a corresponding growth and diversifica- 
tion of the division of labor. It may serve to make our subject 
clearer if we consider it for a moment in this aspect. 

The division of labor may be classified, for the present pur- 
pose, as of two sorts, — contemporaneous and successive. We 
may designate as contemporaneous that division by which one 
man does all the work of getting the food, another all that of 
making the clothes, a third all that of providing shelter, and so 
on ; each carrying out all the steps, from beginning to end, 
involved in the production of his particular commodity. Under 
such an arrangement each worker would become expert in his 
trade and would work at it uninterruptedly. It is conceivable 
that in a primitive community, wdiere all work was devoted to 
securing a finished commodity at short order, and few steps 
intervened between the beginning and the end of production, 
the productiveness of labor might be considerably increased by 
such a division of it. But vastly more important in the history 
of the arts and of civilization is that division which involves a 
separation of successive related acts, — the division in which 
various steps in production are carried on one after another by 
different hands, and through which each commodity becomes the 
product of the complex and combined labors of a great num- 
ber of men. A set of porters, making a profession of carrying 
packs, develop their muscles and wind to an extraordinary de- 
gree, and become capable of can-ying those heavy burdens which 
astonish the traveler in backward countries. Yet their achieve- 
ments are as nothing compared with those of the successive 



518 SELECTED READINGS IN ECONOMICS 

divisions of labor. When one set of men attend to the mak- 
ing of roads, another to the rearing of horses, another to the 
procuring of iron and timber, others to wheels, wagons, har- 
ness, — we get in the end, through transportation by wheeled 
vehicles, an enormous diminution in the labor required for a 
given result. The contrast is still more striking if we consider 
the successive division of labor in the last form to which the 
art of transportation has been carried in the present century. 
The operations extending over a series of years for cuttings, 
embankments, tunnels, bridges, not to mention the tools for 
these, which engaged the energies of a still earlier series of 
workers ; the making of iron and steel, of engines and cars, of 
the endless variety of railway apparatus, — all finally bring that 
extraordinary cheapening of transportation which has so com- 
pletely revolutionized the industry of modern times. To find 
out how much labor has been given under these methods to 
any one wagon load or any one car load, we should need to 
consider, in due measure, all the successive steps. We should 
need to assign some slight fraction of the labor given to the 
making of the wagon road or roadbed of the railway ; a fraction, 
less small, of the labor for making the wagons, or the cars and 
engines ; the whole of the labor of those, like the drivers of the 
horses or the trainmen of the railway, who are engaged immedi- 
ately in transportation. To carry out directly a calculation of the 
labor involved in the carriage of a single ton or wagon load would 
be impossible ; but an infallible test — the price at which the serv- 
ice can be rendered — shows how enormously more effective is 
the more extended and complicated mode of doing the work. 

It would be difficult to find an historical example of the bare 
and uncomplicated use of the contemporaneous division of labor. 
The earliest form doubtless was more or less of the successive 
sort, and the two have developed hand in hand with the prog- 
ress of the arts. The contrast between the primitive porter and 
the railway is obviously a contrast not between the contem- 
poraneous and the successive division of labor, but between 
two phases of the successive division. The transporting of 
goods means only that materials are carried to those who are to 



( 



THE DISTRIKUTION OF ^VEALTH 519 

manipulate Ihcin, or tools to those who are to use them, or en- 
joyable goods to those who are to consume them or sell them to 
consumers. It means but one step — sometimes an early step, 
sometimes a late one — in the successive division of labor. But 
it illustrates the contrast between shorter and longer wa^'s of 
attaining a given end, and the mode in which the progress of 
invention has caused a long stretch of time to elapse between the 
first step and the last toward the satisfaction of human wants. 

So overpoweringly great have been the results of the succes- 
sive division of labor, that it is natural to think of its extension 
as a cause, or at least as a necessary incident, in the increase of 
the powers of mankind and the abundance of enjoyable goods. 
In a great number of striking cases we see the progress of the 
arts taking a direction similar to that which has just been 
sketched as to the art of transportation. The spinning wheel 
and the hand loom, easily and simply made, have given way to 
the jenny and the mule and the power loom, fixed in a great 
building, and moved by complicated machinery ; all involving a 
longer stage of preparatory effort, and yielding the enjoyable 
commodity in the end on easier terms. Savages grind corn by 
rubbing it between two heavy stones which nature happens to 
have provided in something like the needed shape. The grist 
mill, with its hewn stones and its simple machinery, serving its 
own limited neighborhood, represents a considerable extension in 
time of the productive process, and a great increase in its effi- 
ciency. The modern steam mill,, with its huge plant, its ware- 
houses and machinery, with the enormous apparatus of railways 
and steamers for bringing the grain from the four quartere of 
the globe and transporting the flour to distant consumers, carries 
both consequences still further. Hence it has been laid down 
as a general proposition, by one of the ablest and most ingenious 
writers of our own day, that every increase in the efficiency of 
labor brings with it an extension in time of the process of pro- 
duction.^ But it may be questioned whether anything like a 

1 Professor Biilmi-Bawerk's brilliant analysis, in the opening: chapters of the 
Tositive Theory of Capiial, has done more than any other sinjijle discussion to 
emphasize the si<,nii(icance of the lengthened period of production. It is due to 



520 SELECTED READINGS IN ECONOMICS 

connection of cause and effect can be traced or anything more 
than a fact of usual experience found. In the past those inven- 
tions and discoveries which have most served to put the powers 
of nature at human disposal have indeed often taken the form 
of greater and more elaborate preparatory effort. The railway, 
the steamship, the textile mill, the steel works, the gas works, 
and electric plant, — in all these, invention has followed the 
same general direction. But that it will do so in the future, or 
has always done so in the past, can by no means be laid down 
as an unfailing rule. The railway, the telegraph, and the tele- 
phone have served to shorten many steps in production; and 
elaborate machines, though it takes time to make them, do their 
work, once made, more quickly than simpler tools. Invention 
in the future may dispense with steps now thought indispensable ; 
or it may enable elaborate plants to be dispensed with, as would 
be the case if the success of flying machines made the costly 
roadbed of the railway unnecessary. It would be rash to say 
that productive process, under the successive division of labor, 
is likely to be either lenghtened or shortened ; for the ferment 
in the world of invention, and the glimpses of new processes in 
almost every direction make either outcome possible. But it is 
in the highest degree improbable that any changes the future 
may bring will affect that feature of the industrial situation 
which is important for the subject here under discussion. 
Under any methods of production, considerable quantities of 
materials will be provided in advance, tools will be made with 
much labor, and consumable commodities will be brought to 
completion at the end of long stages of productive effort. 

The beginning and the end of the process of production have 
been just spoken of; but clearly these are limits more easily 
described in general terms than fixed with precision in a par- 
ticular case. The end of the process of production is indeed not 

this able thinker to note that he describes in these chapters tlie connection be- 
tween the extension of production over time and its increasing efficiency as a 
simple fact of experience, not as part of the nature of things ; but in the cor- 
ollaries drawn from the proposition in his later reasoning it is treated as if 
universally true. Compare, however, what he has said in reply to some American 
critics, in the Quarterly Journal of Economics, for January, 1896. 



THE DISTUnU'TION OF WEAl/ril 521 

difficult to fix. It comes when enjoyment begins, when the con- 
sumer gets the wherewitlial to feed, to clothe, to shelter himself, 
to minister to his satisfaction or pleasure in any way. Ordina- 
rily this stage comes, as to tangible goods, when they pass from 
the shelf of the retail dealer into the hands of the purchaser. 
But it is by no means easy to put the finger on the point 
where the process of production has its beginning. Bread is 
made from flour, and flour from grain ; the sowing of the seed 
is our starting point in the process of production ; but the seed 
was grown a season before, and comes from an earlier stage of 
effort. The plow, too, was provided before the seed was sown, 
and that plow was made with tools which came from still an 
earlier application of labor. The mill in which the grain was 
ground into flour was erected years before, and the railway 
which carried the grain to the mill stands for another previous 
application of labor. Where shall we say that the process of 
production begins? If we would be mathematically accurate, 
we should need to carry it ages back, to the time when the 
first tool was made; for tools are made with tools, and each is 
in some infinitesimal part the result of labor applied to its pred- 
ecessor of a thousand years ago. For practical purposes, to be 
sure, we can in large part dismiss this consideration. The labor 
given fifty years ago to smelting iron that was made into tools, 
which again served to make other tools, is so infinitesimal a part 
of the labor involved in producing the consumable commodities 
of the present, that we may say, De minimis non curat Je.r. But 
the complications of the labor of the present and of the imme- 
diate past are no less puzzling. The carpenter works one day 
at the frame of a steel mill, which will turn out steel beams to 
be used in buildings or ships ; years may elapse before the first 
completed commodity emerges. The next day he makes a piece 
of furniture, — or, rather, does his share in the making of it, — 
which conduces to the comfort of a householder within a week. 
The railway carries ore which represents a very early stage in 
the process of production ; it carries wool, which may be made 
into a coat and may warm its wearer within three months : and 
passengers who at the moment are enjoying a pleasure jaunt. 



522 SELECTED EEADINGS IN ECONOMICS 

To measure exactly where the labor which builds and operates 
a railway stands in the process of production is practically 
impossible. 

Hence it is practically impossible to measure how long the 
average process of production is, — to say how long an interval 
has elapsed between the time when all the consumable commod- 
ities now available were begun and the time when they were 
completed. We can, indeed, conceive of the meaning of such 
an average. We can say that the labor of the domestic servant 
issues in enjoyment very quickly ; that of the operative in a 
woolen mill, after a few weeks or months ; that of the farmer, 
after a year ; that of the ship carpenter or steel worker, after 
years or even decades. If we could take the balance of short 
processes and long processes, we should ascertain how long, on 
the average, it had taken to make our present enjoyable posses- 
sions. We can even do more than picture to ourselves this 
possible grouping and offsetting of the various processes. We 
can say, from general observation, that the tendency of inven- 
tion has been to lengthen the average. The process of produc- 
tion, as a whole, has probably tended to become longer ; and if 
invention follows the same lines in the future as in the past, 
the process, on the average, will become still longer. But it 
is impossible to say how long it now is, whether two years, or 
five, or ten. The complications of the case make any statement 
in figures out of the question. When we consider the immediate 
history of the most common sources of satisfaction, — food, 
clothes, shelter, and reflect how long a time has elapsed, even 
after the needed tools were on hand, since the grain and cotton 
were sown, the sheep raised for the wool, and the cattle for the 
leather, the bricks made, the trees felled, — we may be sure that 
the average period of production must be stated in terms of 
years. And this vague conclusion, unsatisfactory as it would be 
for statistical purposes, is sufficient for the purpose now in hand. 
It is clear that production is spread over a period of years ; and 
it is clear that the greater part of present labor is given to pro- 
duction at stages preceding by a longer or shorter interval the 
attainment of the enjoyable result. 



THE DiSTKlBUTlO.N UF WEALTH 523 

Before leaving this subject one fuither circumstance may be 
noted in regard to the length of time over which, under the 
modern division of labor, the operations of production extend. 
One part of the period, the last of all, is perhaps susceptible of 
measurement. To repeat what has ah'eady been said, the work 
of the merchant and trader is as fully productive as tliat of the 
artisan and carrier. Each does his share towards bringing com- 
modities to the stage where enjoyment finally begins. It would 
doubtless be possible to ascertain how long the last stage endures; 
to find how long a period elapses, on the average, between the 
moment when goods pass from the hands of the manufacturer 
and artisan into the hands of the dealer, and that at which they 
pass from tlie last dealer into the hands of the consumer. The 
great mass of commodities pass through the hands of two or 
three middlemen ; they go first to the wholesale dealer or agent, 
then to the jobber, finally to the retailer. Each of these keeps 
them a space, liarring perishable commodities, like meats and 
vegetables, a turnover of more tlian six or eight times in the 
year is unusual ; as to many articles, one of three or four times 
a year is common. The inference is plain. Months elapse, 
on the average, between the time when goods are finished, 
in the everyday sense of the word, and the time when they 
reach that stage of enjoyment which is the real aim and end 
of all effort. 

So much as to the first part of the inquiry undertaken in the 
present chapter, — the relation between the work of to-day and 
the output of to-day ; an inquiry which has proved to involve 
some consideration of the work of yesterday as well. Whether 
as to the work now being done, or the work which yields 
the consumable goods now available, we have the same result. 
The work of to-day is applied preponderantly to inchoate 
wealth, to preparatory stages in production ; and the output of 
to-day consists mainly of goods not yet in enjoyable form. 
Most of the labor being done at the i)resent moment will bring 
consumable goods at some time in the future ; while the con- 
sumable goods now available are mainly. the product of past 
labor. The whole process of production is extended over a 



624 SELECTED READINGS IN ECONOMICS 

period not, indeed, to be measured with accuracy, yet certainly 
to be stated in terms of years. 

We may turn now to the second part of the inquiry : What 
is the pay of to-day ? 

The answer here is simple, and could be given in the briefest 
terms. The immediate reward for the exertion of labor consists 
of completed and enjoyable commodities. Food, clothing, shelter, 
things that satisfy our needs and our desires, — these are the 
pay of to-day. The laborer's bread and meat, his tobacco and his 
whisky, his house and his clothes, things that may do him good 
or harm, but are at all events desired by him, constitute the 
reward he now gets. 

This is so simple that it would seem not to need another word 
of explanation. Yet on the subject of wages, as on many others 
in economics, it is the failure to bear in mind very simple and 
obvious facts that most frequently causes error. In discussions 
of wages, of the source whence they are paid and the factors that 
affect their amount, nothing has been more common than to con- 
sider only the machinery by which laborers are enabled to get 
their real wages. The cash paid them by an employer, or received 
by them in direct pay for their product, has been mainly thought 
of. The obvious distinction between real wages and money wages 
makes its appearance in every book on the elements of economics, 
but it is too often forgotten when the causes determining wages 
come to be examined. When a question arises as to the relation 
between the laborer's output and his pay, it is common to speak 
of his product and of his pay in terms of money. When it is 
asked whether the laborer is paid out of capital or out of product, 
the first impulse is to think of capital as money funds in the hands 
of the employer and of product as the money value of what 
is being turned out. In answer to the proposition, attributed 
more or less justly to the older English economists, that laborers 
get their wages from a rigidly predetermined source, it is often 
said that the wages which employers can pay may be increased 
by quicker sales or by the use of credit, — which obviously 
refers to money wages. The inquiry as to the direct relation 
between laborers and employers, and as to that first step in the 



THE JJLSTlUliUTJUX OF WEALTH 525 

apportionment of wages which comes tlirough money payments 
from one to the other, is important and fruitful, as will elsewhere 
appear. But on the crucial question of the cause of general high 
wages in the sense of general real prosperity among laborers, it 
leads only to confusion. If we would learn what makes wages 
high, in the sense which is mainly important for the workmen 
as a class and for the community as a whole, we must bear in 
mind that real wages alone are to be thought of, — things con- 
sumable and enjoyable. 

What is true of the laborers is true of all classes in the commu- 
nity. All, whether idlers or workers, get their real reward from 
the same source, — the completed conmiodities which satisfy 
human wants. These, as they appear in recurrent supply, form 
the net income of the community. Whether there can be any 
possibility of separation of this net income into parts destined 
for any one set of persons, or appropriated to them, — whether 
one part of the available supply can be said to constitute a wages 
fund, another a profit fund, a third an interest fund, a fourth a 
rent fund, — these are questions that will engage our attention 
at a later stage. Here we may content ourselves with the simple 
and unquestionable proposition, that all real income of any sort 
comes in the form not of money, but of goods and wares that 
minister to our wants. 

Still further to emphasize this elementary j-et all-important 
proposition, we may consider for a moment where we should 
find in any given community this immediate reward of the 
laborer. It must proceed chiefly from the stocks in the hands of 
the retail dealers. Their wares are in the last stage which pro- 
duction goes through, and are on the point of ripening into full 
completion. A good part of wages, no doubt, must come from 
elsewhere. House shelter, partly a necessity and partly a source 
of comfort and luxury, is ordinarily already on hand, needing no 
further labor toward complete fruition than occasional repairs. 
If owned by another person, as is commonly the case with the 
house occupied by the hired laborer, that person is in possession 
of the source whence so much of real wages is derived. If the 
laborer owns his own house, he spends the money received for 



526 SELECTED READINGS IN ECONOMICS 

present labor in other ways. The shelter and comforts of the 
house he owns form no part of his real reward for the work of 
to-day ; they are the reward of past labor, or past claims or rights 
of some sort, and no more form part of his pay for present work 
than the enjoyments which the idle rich buy with their money 
incomes form reward for any present exertion. His wages for 
present exertion are what he buys with the cash which, under a 
money regime, he receives for the day's or week's work ; and 
questions as to the sources of his real wages, their limits, their 
flexibility, or predetermination, are questions as to the limits and 
determinateness of the stocks or forthcoming supplies of goods 
now chiefly in the hands of shopkeepers, which he will buy with 
his money wages. 

We are now in a position to give an answer to one part of the 
question with which this chapter opened : whether wages are or 
are not paid from present or current product. The answer to 
the other part of the question, — whether or not they are paid 
from capital, — must still be postponed, requiring, as it does, 
some further consideration of the definition and function of capi- 
tal. But wages are certainly not paid from the product of present 
labor ; they are paid from the product of past labor. Present 
labor produces chiefly unfinished things ; but the reward of 
present labor is finished things. Real wages are virtually to 
their full extent the product of past labor. At this moment, or 
within a few days, the last touches toward completion have in- 
deed been given to the commodities now being enjoyed. But the 
great bulk of the labor whose product all of us, whether laborers 
or idlers, now enjoy was done in the past. 

This fact is obscured, in our everyday thought, in two ways : 
we think of the product in terms of money, and we think of the 
laborer who gives the finishing touches in production as the 
" maker " of the article. When we want to compare the amount 
which a laborer produces with the amount which he receives, the 
simplest and most obvious way is to compare the money value 
of the two : a method the more tempting because for many pur- 
poses, not least for the business ends of the individual employer, 
it is all-sufficient. Thus we think of product and wages as 



THE DLSTIUr.UTlON OF WEALTH 527 

similar things, and of product as preceding wages ; forgetting 
that in concrete reality they are different things, and that present 
real wages must be on hand long before present product is com- 
pleted. On the other hand, the baker is said to make bread, the 
tailor to make clothes, the carpenter to make furniture ; though, 
with the inconsistency characteristic of that early stage of classi- 
fication which is crjstallized in common s[)eech, we never speak 
of the merchant or shopkeeper as " making " anything. In fact 
the baker and the tailor do no more than their small shares in the 
making of bread and clothes ; a long series of farmers and wool 
growers, manufacturers, merchants, and carriers constitute with 
them the complete chain of the producers of the articles. 

There is a sense, it is true, in which we may speak with 
accuracy of wages as coming from current product ; and it is 
one which deserves attention, because it brings out the relation 
between some older speculations on wages and capital and the 
more recent turn of the discussion. 

The classic economists were in the habit of speaking of the 
commodities consumed by laborers as a fund or stock, described 
in a Avay that implied a great store on hand, ready .and available 
at once, likely to be replaced after a season by another similar 
store. This at least was their practice when they described the 
Avages fund as a concrete thing, made up of commodities which 
would yield real wages. Too often they spoke and thought of 
funds and capital in the money sense, and of wages as eoming 
from the employing capitalists' money means, thereby introduc- 
ing a confusion which runs through almost the whole of the 
century's literature on the subject. Ricardo, however, and the 
abler of Ricardo's followers, usually kept to the first conception, 
of a wages fund made up of commodities, not of money. In the 
Ricardian system, again, wages were measured in terms of food, 
and especially of grain or corn ; and the wages fund consisted 
of a stock of food. For shortness of reasoning and of statement 
(too often with the result of confusion in both) this stock was 
reasoned about as if it were owned by the immediate employ- 
ers and handed over by them directly to laborers who ate it. 
The miller and the baker were put aside ; and, what was more 



528 SELECTED EEADIKGS IN ECONOMICS 

dangerous to accurate thought, it was assumed for brevity that 
the capitalists who employed the laborers were the individuals 
who owned the grain. The source of wages was then easily 
conceived as a fund stored up, all ready for use, controlled by 
employers, limited in amount for the time being, and entirely 
the product of past labor. The seasonal harvesting of the crops 
made it impossible this year to procure more than had been 
sown and harvested ; and the real wages fund had nothing to 
do with current work and product. 

The error of this view is one of degree rather than of kind, 
of insufficiency rather than of inaccuracy. It is no grievous 
departure from literal truth if we speak of grain as consumable 
by laborers, omitting, for brevity, the operations of transporting, 
and grinding, and baking it. And we may perhaps fairly think 
of the grain on hand this season as fixed in amount, incapable of 
being increased or diminished. Doubtless there are here some 
elastic limits ; a heavy crop may be carried over in part to another 
season, and a lean one consumed at once to the last bushel in 
anticipation of better times soon to come. This sort of averaging 
of the yield -certainly could take place under modern methods 
of storage and preservation, and may have taken place even in 
the days when Ricardo wrote. It is more important to correct 
the older view in other directions. Food is not the only article 
consumed by laborers ; none of the various commodities that 
make real wages, not even breadstuffs, exist in the shape of 
accumulated stores of finished goods. Further, the capitalists 
who directly employ laborers have usually no ownership of the 
commodities which make real wages. If these real wages come 
from capital, the capital is certainly not in the hands of the 
employers. 

Considering both of the last-mentioned facts in the situation, 
— the variety of the commodities which go to make real wages, 
and the widely distributed ownership of these tangible commodi- 
ties, — we reach the conception of a flow rather than a fund of 
real wages. The community possesses at any given moment a 
quantity of goods in all stages of completion — some just begun, 
some half finished, some very nearly or quite finished. The last 



THE DISTRIBUTION OF WEALTH 529 

touches are being given at every moment ; enjoyable commodi- 
ties each day are consumed, new commodities advance each day 
to take their place. We have no great stores of completely fin- 
ished goods, but, as Professor Marshall has happily said, a steady 
flow of accruing real income. 

No doubt the old conception of a fund fits the facts of the 
case in some regards quite as accurately as the new one of a 
flow. The distinguished Austrian writer who has contributed 
so much to the clearer understanding of this part of the machinery 
of production, has suggested that all the possessions of the com- 
munity may be reduced to an equivalent in terms of subsistence 
or other finished goods. What he calls the general subsistence 
fund is made up of all wealth whatsoever, — machines, materials, 
completed goods. Its volume may be measured by ascertaining 
how much labor is embodied in this sum total of wealth, and how 
long the wealth, completed and enjoyable, which so much labor 
could produce, would continue to satisfy the wants of the com- 
munity at its habitual rate of consumption. In this sense we 
may say that the community owns at any given time a subsistence 
fund for, say, five years ; meaning not that there are stores of 
finished goods which will last five years, but that the wealth on 
hand has embodied in it five years of the community's labor, and, 
simply carried to completion without the initiation of a stroke 
of new work, would last for a long period. Here we have a 
statement of the case, useful for some purposes, which looks to 
a fund rather than to a flow. And from still another point of 
view the conception of a fund has its justification. The stock of 
available finished commodities, if a flow, is affected in its volume 
by sources which possess some of the characteristics of a reservoir 
or fund. The number of loaves that can be put forth from day 
to day depends on the season's stock of grain ; that of clothes, 
on the wool and the sheep on hand, and on the machinery avail- 
able for manipulating the materials; that of boots, on the hides, 
and the cattle, and the available machinery. How far the volume 
of consumable goods now obtainable is limited by such condi- 
tions ; how far determined once for all by the materials and tools 
of past making ; how far capable of enlargement or diminution 



530 SELECTED READINGS IN ECONOMICS 

by changes in the labor of the moment, — these are questions 
which may engage our attention at a later stage. For the present 
it is necessary only to get a clear conception of the sense in which 
there is on hand at any given time a supply or stock of finished 
goods for the consumption of laborers and others. It is a flow 
of finished goods from goods partly finished, constantly wasting 
away and constantly renewed ; greatly affected, perhaps deter- 
mined once for all, by the mode in which past labor has been 
given to tools and materials ; yet certainly not without some 
degree of flexibility at any given moment, and certainly not an 
accumulated or rigid fund. 

We can see now in what sense it is true that wages — or any 
other form of income, for that matter — are paid out of current 
product. The goods which laborers get, or, to be literally accurate, 
the goods which they buy with their money wages, in a sense are 
made from day to day ; they are current product in the sense that 
the last touches are given them from day to day. Something 
of this sort has doubtless been in the minds of the writers who 
have maintained that wages are derived from present or current 
product. Unquestionably a confusion between real wages and 
money wages has also had its share in the adoption of their view. 
Current money wages obviously do come largely from the money 
value of the present product, and the proposition that wages are 
paid from the current yield of industry in this sense is as un- 
deniable as it is immaterial so far as the source of real wages is 
concerned. 

We may now summarize the results of this chapter by a 
graphic representation of the course of production and enjoy- 
ment in a modern community. A diagram showing the rela- 
tion between the work of to-day, the output of to-day, and 
the pay of to-day may be constructed thus : let A represent the 
workers who stand in the earliest stage of production, say the 
miners and lumbermen ; let B represent those in the next stage, 
say the makers of pig iron and of sawed timber; let C desig- 
nate those who carry on operations in the next stage toward 
completion ; D, those in the next ; and E, finally, those who 
give the finishing touches and bring to market a consumable 



TIIK DISTKTl'.UTIOX OF WEALTH 531 

commodity. The same letters may indicate the products turned 
out by the different producers, A standing for the iron ore, and 
E for the bread and meat. A, B, C, I), E may represent the 
workers and their output in a first year ; Aj, Bj, Cj, in a sec- 
ond year ; and so on. We could then array the operations of a 
series of years in this fashion : 

In 1890 A B C D E 

" 1891 AjXBi Ci Dj Ej 

« 189-2 A„ BoXCj U, Eg 

" 1893 A3 B3 C3 XDg Eg 

« 1894 A, B, C, D/\E, 

In each year all the various operations are going on simulta- 
neously. A, B, C, D, E are at work on their separate tasks, 
and are turning out all shades of products, from the crudest 
material to the ripened commodity. In successive years the A's 
and the E's continue alike to repeat their work : the miners 
remain in the mine, the shopkeepers serve their customers in 
the shops. In any one year the community, while producing 
all the products A, B, C, D, E, has at its disposal only the 
commodities E. These alone are consumable and enjoyable ; 
these alone can constitute real wages or real profits or refll 
income of any sort. In the year 1890 E would be available ; in 
1892, E2. The question whether wages in 1894, which must 
come out of E^, are the product from past or present labor, can 
be answered by inquiring what labor produces the E commodi- 
ties of any one year; say E^ of 1894. If Ave suppose present 
labor, then E^ will be the product of the work indicated by the 
horizontal line A 4, B^, C^, D^, E^. If past labor, or chiefly past 
labor, then E^ will be the product of the work indicated by the 
diagonal line A, I>j, C^, Dg, E^. It needs no argument to show 
that the workers E^ cannot be completing the material wliich 
A4 are bringing fortli at the same time. Each stage in the 



532 SELECTED READINGS IN ECONOMICS 

successive division of labor requires time. E^ must be at work 
on products which came from D of an earlier period, say the Dg 
of 1893 ; Dg got them, partly advanced toward completion, from 
C2 of 1892 ; the first steps were taken five years ago by A of 
1890. The diagonal line marks the labor which yields the 
enjoyable commodities of 1895, — labor mainly of the past, and 
only in small part of the present. 

It hardly needs to be explained again that a simple scheme 
of this sort is far from corresponding to the complexities of real 
life. The earliest and the latest stages of production are so 
interwoven that any brief statement or simple diagram can 
give no more than a crude and inaccurate picture. The com- 
modities which we have typified in the E's, and which are 
represented as lately finished, after having gone through a 
regular series of previous operations, are sometimes made very 
largely with recent labor, sometimes very largely with past 
labor. Personal or domestic service is an important source of 
enjoyment ; as productive of satisfaction, and therefore of 
wealth in the important sense, as the labor that makes bread 
and wine. Here exertion and satisfaction are coincident ; there 
is no chain of successive producers. On the other hand, the 
shelter and comfort which are now yielded by a dwelling are in 
greatly preponderant proportion due to labor exerted in varying 
stages of progression in the past. And at the other end of the 
scale commodities in the early stages of unripeness may reach 
fruition by a longer or shorter route. Pig iron may be made 
into a stove and may serve to diffuse grateful warmth within a 
month; or it may be made into a machine which will be used 
in making another machine, and may not issue in a consumable 
commodity for years. Any scheme, or diagram, or classification 
of the stages in production must have a rigid and arbitrary 
character, and cannot conform to the endless complexities of 
the living industrial world. None the less it may bring into 
distinct relief the general truth which underlies all the variety 
of detail, — that production proceeds by successive stages, and 
that the community at present is supplied with necessaries and 
comforts made mainly by the labor of the past. 



THE DISTRIBFTION (^F WEALTH 533 

2. Historical Changes in the Rate of Wages ' 

It is not easy to present the facts concerning the movement 
of wages, and we can here offer only a brief summary of the 
subject. The forms of payment are so various, comparison is so 
difficult, the materials for earlier times are in many countries so 
incomplete* that a comprehensive account of wage movements 
cannot be easily constructed. Recently, however, wage statis- 
tics have been subjected to special scientific study with a view 
to improving the methods of observation and comparison. It 
was long ago recognized that the daily or weekly rates of pay- 
ment, the so-called "• nominal wages," should be translated into 
"real wages," that is, the amount of commodities that the 
laborer can purchase with the mone}' he receives. Therefore 
statements of money wages were supplemented by investiga- 
tions into the purchasing power of money by converting them 
into " corn wages," by ascertaining the cost of food, clothing, 
and shelter, or by studying household budgets. It has long 
been clear, also, that in any satisfactory statement of wages, 
account must be taken not only of money payments but also 
of payments in kind ; that, besides the laborer's main source 
of income, supplementary earnings must be considered ; that, 
besides the wages of the head of a family, the earnings of the 
wife or the children must be considered. But to-day, rightly 
enough, still more is demanded. In place of mere estimates of 
average rates of weekly, monthly, or yearly wages, we demand 
statistics of wages actually paid, distinguishing the method of 
payment and the actual amount paid by the week as shown 
by the employer's books and pay rolls. We wish to know 
what part of the total payment forms the regular wage, what 
part, if any, is payment for overtime, how many days in the 
year a man is employed, how many and what sort of workers 
belong to each separate wage class ; and, besides, we wish to 
have the information supplied by the employer verified by 

1 By Gustav Schinoller. Keprinted, by consent of the author and pub- 
lisher, from Schinoller's Grundriss der allgemeinen Volkswirthschaflslehre, 
II [Duncker and Ilumblot, Leipzig, 1904]. 



534 SELECTED READINGS IN ECONOMICS 

information gathered from the laborers, and much more of the 
same sort of thing. 

Of late years the materials for scientific study have been 
greatly improved in some directions. But the difficulty and 
expense of modern scientific investigation is so great that, in 
addition to the new and improved, but limited, material, we are 
obliged to use the older and cruder material in some cases, 
unless we are willing to renounce all attempts to make broad 
comparisons and obtain an extended basis for empirical study 
of wage theories. 

I begin with some observations concerning historical move- 
ments of wages in those civilized countries which seem to me 
to be of the greatest importance, premising the remark that for 
the more remote periods I shall state the wages in kilograms of 
wheat or rye rather than in money, since this method will greatly 
facilitate comparisons. I should state also that all wages quoted 
for the thirteenth, fourteenth, fifteenth, and sixteenth centuries 
— and, to some extent, for the seventeenth and eighteenth cen- 
turies — are the occasional earnings of a small number of men ; 
that they represent, far less than modern wage quotations, the 
entire income of the recipients ; and that, therefore, their fluctua- 
tions do not have the same significance as fluctuations in modern 
rates of wages. Where nothing is said to the contrary the figures 
represent the average weekly wages of common laborers. 

Something further should be said concerning the reduction 
of wages to terms of corn. Upon the basis of numerous investi- 
gations nineteenth-century landlords reckon that the average 
cost of maintaining an agricultural laborer ranges from 1600 to 
2500 pounds of rye (800-1250 kilograms). By the same author- 
ities the annual subsistence of a family is placed at from 3800 
to 6600 pounds of wheat (1900-3300 kilograms). To-day it is 
supposed that the yearly consumption of cereals for each adult 
is about 250 kilograms, so that the actual consumption of a 
family consisting of two adults and two or three young persons 
or children can be fairly estimated to be some 1000 kilograms. 
We shall not be far out of the way if we reckon that the cereals 
consumed by such a family represent from one third to one fifth 



TTIE DISTIMIU^TIOX OF WEALTH 535 

of the total necessary expenditures. Therefore the total expend- 
iture of a single adult can be placed at from 750 to 1250 kilo- 
grams, and that of a family can be placed at from 3000 to 5000 
kilograms. This gives a weekly outlay of from 14.5 to 24 kilo- 
grams for an adult, and from 57.7 to 96 kilograms for a family. 
Perhaps we can say, and results reached empirically confirm this, 
that a weekly income of less than from 15 to 24 kilograms is 
hardly sullicient to maintain a single person, and is certainly a 
starvation wage for a family ; that wages of from 50 to 60 kilo- 
grams are hardly sufficient for a family ; that Avages of from 90 
to 120 kilograms are adequate to support a family; and that 
wages amounting to 200 kilograms or more are very satisfactory. 

Rough and schematic as these estimates and figures are, and 
however much as they need to be modified in particular cases 
on account of differences in consumption and needs, or differ- 
ences in the prices of grain, potatoes, meat, clothes, and lodg- 
ings, nevertheless they give approximately the necessary basis 
for comparisons of wages in various times and countries. There 
is no commodity more important in the budgets of the laborers 
of civilized states, and none the price of which affects so mate- 
rially the cost of supporting a household. And numerous em- 
pirical investigations prove that, for early times as well as 
modern, differences in tiie conditions of livinir can be measured 
with general accuracy by computing tlie purchasing power of a 
laborer's wages according to our scale of 15, 60, 120, and 200 
kilograms of giain. 

For England we have in the investigations of Rogers, Cun- 
ningham, Hewins, Toynbee, Arthur Young, and later statisti- 
cians, a comparatively satisfactory basis for our investigation. 
We can conclude that in the thirteenth century hired laborers, 
who were not then numerous, earned about 35 kilograms of 
wheat per week ; that between 1340 and 1350, on account of 
the scarcity of hands caused by the Great Plague, they received 
from 60 to 80 kilograms ; and that up to the beginning of the six- 
teenth century wages remained at an equally high figure. Then 
came less favorable times. The decline of the peasantry, the 
depression of agriculture caused by the development of grazing, 



536 



SELECTED READINGS IN ECONOMICS 



and the revolution in the purchasing power of money, which 
was not followed by an equal change in wages, brought about a 
reduction of wages. The poor laws, also, and the regulation of 
wages by law must have contributed to produce vagabondage 
and the suffering of the laborers driven from the soil. Rogers 
estimates that the real wages of the laborer between 1500 and 
1650 fell to one quarter of their former rate. I compute that 
he received on the average about 30 kilograms of wheat. Ac- 
cording to Wiebe's estimates of money wages and Kulischer's 
estimates of real wages, the change of wages in England and 
in certain districts of Germany was as follows : 



ft 

Periods 


English 


Wages 


Wages in Alsace 












Money Wages 


Real Wages 


Money Wages 


Real Wages 


1451-1500 .... 


100 


100 


100 


100 


1551-1570 .... 


98 


60 


88 


55 


1571-1602 .... 


120 


51 


103 


53 


1603-1652 .... 


146 


40 


121 


40 


1653-1702 .... 


206 


54 


108 


45 





Periods 


Wages at 


MUNSTER 




Money Wages 


Real Wages 


1447-1500 . 


100 
89 
91 
96 


100 


1501-1520 


80 


1521-1550 


87 


1551-1560 


78 







The deterioration in the condition of the laborers was quite 
general throughout Europe ; yet it was not so great as the fig- 
ures just given would seem to indicate. Wherever wages were 
generally paid in kind, where the number of hired laborers was 
small, where the number of peasant cultivators remained large, 
where journeymen were protected by gild traditions, or where 
domestic workers were protected by public regulation, the fall of 
wages was generally less marked. But when these favoring con- 
ditions did not exist the condition of the laborer was very bad. 



TTIE DlSTlUr.rTToN OF WKALTII 537 

In England money wages rose considerably — by nearly 120 
per cent — between 15(50 and 1800. Cunningham gives as a 
fair average: 1610, 3 shillings; 1685, 4 shillings; 1725, 4 to 
5 shillings ; 1795, 9 shillings. This was the result of general 
improvement in economic conditions. Real wages, to be sure, 
lagged behind money wages. From 1725 to 1750 a laborer could 
purchase 40 kilograms of wheat with 4 shillings ; in 1795 his 
nine shillings would purchase but 30 kilograms. With the great 
increase of the cost of living between 1795 and 1846 the wages 
of agricultural laborers rose to 9 or 10 shillings, and those of 
artisans ranged from 13 to 16 shilling's. With 10 shillincfs 40 
kilograms of wheat could be bought, but in times of famine 
prices not more than 20 kilograms could be procured. In 
domestic industry wages sank lowest. Population increased 
rapidly, payment in kind and the old laws regulating wages 
disappeared, and at times commercial crises increased fearfully 
the evil of unemployment. The suffering of the laboring 
classes was far greater than it was during and after the fall of 
wages in the sixteenth and seventeenth centuries. 

Before considering the rise of English wages since 1846 I 
will present here statistics for countries of Continental Europe 
(luring the earlier period. 

In France, according to the investigations of iMantellier, 
which relate to Orleans, the daily wage of a common laborei', 
expressed in French money of to-day, has moved as follows : 

1400-1475 = 0.81 fr. 1576-1600 = 1.09 fr. 
1470-1500 = 0.09 " 1601-1675 = 1.10 " 

1501-1575 = 0.50 " 1851-1860 = 2.25 " 

And the mine (33 liters) of wheat cost: 

1400-1475 = 2.09 fr. 15 1600 = 5.92 fr. 
1476-1500 = 1.97 " 1()01-1675 = 3.18 " 

1501-1575 = 2.66 " 1851-1860 = 6.63 " 

This means that in the fifteenth century a laborer earned one 
third of a mine of wheat, in the sixteenth, one fifth of a mine, in 
the seventeenth, and again in the nineteenth, about one third of 
a mine. For the eighteenth century Moreau de Jonnes and 



538 SELECTED EEADIHGS IN ECONOMICS 

Foville compute that an agricultural laborer's family which 
would have needed 15 hektoliters of wheat for a satisfactory 
subsistence earned : 

Years 1706 1789 1813 

Yearly earnings 180 fr. 200 fr. 400 fr. 

Cost of 15 hektoliters of wheat . . . 283" 240" 315" 

Per cent earnings bear to cost of wheat 0.63 0.83 1.27 

This explains the fact that such a large part of the rural popu- 
lation of France was poorly fed and in bitter poverty from 1650 
to 1789. 

Of the estimates of the historical course of wages in Ger- 
many I will present, in addition to the data already given, the 
results of Beiszel's investigations concerning the construction 
of the church at Xanthen. The daily wage amounted to the 
following sums (1 denarius = 2.7 pfennige) : 

A MA.SON A Sawyer 

1356-1399 33 denarii 25 denarii 

1450-1499 36 " 25 " 

1550-1599 72 " 75 " 

1600-1649 166 " 155 

1650-1679 200 " 189 " 

With his wages the mason could each week purchase the fol- 
lowing quantities of wheat, rye, and barley : 

1356-1399 = 150 kilograms 1600-1649 = 66 kilograms 

1450-1499 = 100 " 1650-1679 = 78 " 

1550-1599= 48 " 

The fall in real wages in Germany is well established by 
numerous other investigations, but less is known about the 
subsequent rise caused by the lack of laborers after the great 
war. Yet upon the whole the condition of the working classes 
remained unsatisfactory, especially when about 1600 the weekly 
earnings of a day laborer fell to 40 or 50 kilograms of rye, as I 
have estimated it did in Saxony. In the eighteenth century the 
wages of agricultural laborers in the eastern part of Germany 
ranged from 13 to 18 groschen (equal to 25 or 30 kilograms of 
wheat) ; while in the western part 30 groschen was the custom- 
ary wage. But the difference between real wages in the two 



THE DISTKIIU'TION OF WEALTH 539 

sections was not so great as that in the money wages. In the 
towns wages stood at from 30 to 48 groschen, the higher rates 
occurring in prosperous industrial centers where occasionally the 
figures rose even higher, to 3, 4, and 5 thalers per week (15 
groschen are equivalent to 25 kilograms of rye, and 4 thalers 
to 100 kilograms of rye). 

During the entire first half of the nineteenth century wages 
changed but little in Germany. In country districts they 
amounted to 40 or 50 pfennige per day in the east, and ranged 
from 70 to 100 pfennige in the west and in rich districts. In 
declining industries, such as spinning and weaving, wages were 
sometimes lower than in the eighteenth century. But in others 
that were prosperous they ranged from 1.2 marks to 1.8 marks 
per day, and sometimes more, while rye cost from 2.5 to 4 
marks per scheffel (40 kilograms). In agricultural districts a 
weekly wage of three marks (50 pfennige per day) meant that 
the laborer was earning above 40 kilograms of rj-e when the 
scheffel cost 2.5 marks, but only a little more than 20 kilograms 
when the scheffel of rye cost 4 marks or more. The artisan's 
wage of 1.8 marks per da}-, or 10.8 marks per week, was equiva- 
lent to IGO kilograms when the scheffel cost 2.5 marks, and 108 
kilograms when it cost 4 marks. Between 1840 and 1860, 
when the cost of living rapidly increased, wages did not as a 
rule advance at an equal rate. From 1845 to 1855, in particu- 
lar, the condition of many laborers was exceedingly miserable. 
Wages of even 10.8 marks per week would, at the prices then 
prevailing, purchase but 50 or 60 kilograms of rye ; and wages 
of three marks would purchase correspondingly less. That was 
the period when typhus fever, attributed to hunger, raged in 
upper Silesia and elsewhere so fearfully that for some time it 
was feared that entire districts would be depopulated. 

But such conditions were exceptional in Germany. In Bel- 
gium and Holland at that time I believe that wages were even 
lower ; in France, however, they had risen materially since the 
Kevolution. In England the condition of the lower half of the 
laborinor cla.sses remained until 1840 or 1850 rather worse than 
it was anywhere upon the continent, but the condition of the 



540 SELECTED HEADINGS IN ECONOMICS 

upper half was considerably better. Tooke places the wages of 
the cotton spinner at 58 kilograms of meal in 1804, at 82.5 
kilograms in 1814, and at 105 kilograms in 1823. The wages 
of hand weavers, to be sure, had fallen during the same period 
from 16 to 6 shillings per week. 

Caird, the great authority, estimates English agricultural 
wages as follows: 1770 = 7 shillings; 1850 = 10 shillings; 
1880 = 14 shillings. But during this century many rights and 
allowances had disappeared, such as rights of pasturage and 
cheap dwellings. The Labor Department places the average 
wages for 1850 at 9 shillings, for 1855 at 11 shillings, and for 
1899 at almost 14 shillings ; that is, an increase of 22 per cent 
between 1855 and 1899. But in 1855 the quarter of wheat 
cost 74 or 75 shillings, while to-day it costs 25 or 26 shillings. 
In 1855, therefore, 11 shillings would purchase 35 or 36 kilo- 
grams of wheat ; whereas in 1899, 14 shillings would purchase 
117 kilograms. The average wages of 14 shillings, however, 
is an average of varying quotations which range from 12 shil- 
lings in the south of England to 20 shillings in the north. 
And all unprejudiced observers consider the wage of 20 shil- 
lings to be insufficient, and say that the agricultural workman 
must have in addition a small holding of land or an old-age 
pension. 

Great as are the variations in agricultural wages according 
to the locality, the soil, or activity, wages in manufacturing 
pursuits vary still more according to the prosperity and the 
form of management of the various branches. The chief English 
authorities compute that between 1840 and 1890 the general 
increase of wages averaged from 60 to 80 per cent, the increase 
ranging in different cases from 20 to 150 per cent. If the bulk 
of the laborers from 1820 to 1850 received from 13 to 16 shil- 
lings, they now receive from 20 to 35 shillings. The greatest 
increase occurred between 1840 and 1875 ; then the upward 
movement slackened, and at times stopped, only to begin again 
between 1887 and 1891 and between 1896 and 1900. The 
Webbs say that, among organized laborers, the wages range 
from 24 to 72 shillings. The weekly earnings of the Lancashire 



THE DISTRIBUTION OF WEALTH 541 

cotton spinners have been estimated at 133 kilograms of flour 
in 1837 and 200 kilograms in 1891. . . . 

By way of supplementing the data already offered concerning 
France, I will add that the yearly income of an agricultural 
laborer's family in 1814 is estimated at 400 francs, in 1860 at 
500 francs, in 1870 or 1875 at 800 francs; while at these dates 
the 15 hektoliters of wheat such a family would need cost 
respectively 315, 305, and 345 francs. According to Leroy- 
Beaulieu the wages of bakers at Paris were 20 francs in 1830, 
30 francs in 1854, 38 francs in 1867, and 45 francs in 1880. 
Chevalier computes that the increases of wages in different 
industries ranged from 40 to 200 and even 300 per cent ; and 
adds that bread remained unchanged in price, meat increased 50 
per cent, milk 25 per cent, and rent 100 per cent, while clothes 
and groceries became much clieaper. The yearly earnings of 
miners in 1800 were 300 francs, hi 1815 they were 593 francs, 
and in 1877 they were 1002 francs. Wages in the provinces 
have not advanced so much as wages in the large cities, but 
the wages of tlie lower classes of labor, of simple hand labor, 
and of women, have risen more than the wages of the better 
trained male workers. 

In Germany wages rose little during the fifties, with the ex- 
ception of a few individual localities and trades; and from 1850 
to 1865 such advance as occurred hardly offset the increase in 
the cost of living. The first important general increase followed 
1865 and lasted until 1875. Then followed a slight decrease, 
and another moderate increase lasting until 1900. 

According to inquiries made in 1849, 1873, and 1892, the 
weekly wages of the free agricultural laborers in the six eastern 
provinces of Prussia stood as follows : 

Year Money Wages Wages ix Kye 

1800 2.40 marks 

1849 3.00 to 4.20 " .30.0 kilograms 

1873 4.80 to 7.20 " 45.0 " 

1802 7.00 to n.OO " 00.0 " 

♦ *»***** 

I may present the following data concerning tiie wages of in- 
dustrial workers. A compositor who prior to 1847 received 



542 



SELECTED READINGS IN ECONOMICS 



from 24 to 26 scheffel of rye for setting one million units of 
type received in 1860 for the same work 48 scheffel, and in 
1871 he received 83 scheffel, which would be equivalent to 16.5 
marks or 100 kilograms of rye. A Saxon journeyman shoeraan 
received from 6 to 8 marks per week in 1856, 12 to 17 marks 
from 1871 to 1880, and 11 to 13 marks from 1880 to 1886. In 
Rhenish Westphalia miners earned approximately the following 
average wages per year : 1865, 600 to 700 marks ; 1874, 900 to 
1000 marks; 1886 to 1888, 800 to 900 marks ; 1890, 1100 to 
1200 marks; 1898 to 1899, 1300 to 1500 marks. The daily 
wages of masons in Berlin were from 2 to 2.5 marks between 
1848 and 1850, and rose to 4.5 and even 6 marks per day during 
the last decade. ... 

I may add some yearly wages paid in Berlin in 1907, which 
are taken from the Statistical Yearbook of Berlin : 



Highest 
Bate 

Stonecutters 1800 marks 

Metal workers 1700 

Lace workers 1080 

Masons "... 1920 

Butchers 1586 

Brewers 1500 

Shoemakers 578 

Hairdressers 1046 



Lo-w 


EST 


Mean 


Ba 


TE 


Rate 


693 


marks 


1331 marks 


1200 




1382 




720 




920 




875 




1322 




910 




1200 




1350 




1472 




560 




569 




980 




1014 





With 600 marks one could purchase, upon the basis of the 
prices that prevailed in Germany from 1892 to 1899, 4600 
kilograms of rye and 3800 kilograms of wheat ; and with 1000 
marks one could purchase, respectively, 7600 kilograms and 
6400 kilograms. This would mean a weekly supply of from 
73 to 146 kilograms ; while, with an income of 1500 marks 
per year, the weekly earnings would be over 200 kilograms. 
A yearly income of from 600 to 1200 marks for the head of a 
family, and a family income of from 1000 to 1500 marks if the 
wife or children also work, can be taken as representative figures 
for the earnings of German workmen. This is a sum which for 
an unmarried man of from 18 to 25 years is larger than is neces- 
sary; but for a family an income of 1000 marks is still too 



THE DlSTRir.UTlON OF W EAl/Ili 543 

small, while one of 1500 marks may be considered satisfactory. 
In any case it is an income which equals that of the small 
peasant proprietor, the handworker, the schoolmaster, and the 
class of subordinate oflicials. Such a famil}' can steadily improve 
its position if the wife is thrifty, the husband is temperate, and 
the housing conditions are tolerable. 

3. Adam Smith on "Wages and Profits in the Different Employments 
of Labor and Stock '■ 

The whole of the advantages and disadvantages of the differ- 
ent employments of labour and stock must, in the same neigh- 
bourhood, be either perfectly equal or continually tending to 
equality. If in the same neighbourhood, there was any employ- 
ment evidently either more or less advantageous than the rest, 
so many people would crowd into it in the one case, and so 
many would desert it in the other, that its advantages would soon 
return to the level of other employments. This at least would be 
the case in a society where things were left to follow their natural 
course, where there was perfect liberty, and where every man was 
perfectly free both to choose what occupation he thought proper, 
and to change it as often as he thought proper. Every man's 
interest would prompt him to seek the advantageous, and to shun 
the disadvantageous employment. 

Pecuniary wages and profit, indeed, are everywhere in Europe 
extremely different according to the different employments of 
labour and stock. But this difference arises partl}^ from certain 
circumstances in the employments themselves, which, either 
really or at least in tlie imaginations of men, make up for a 
small pecuniary gain in some, and counterbalance a great one 
in others ; and partly from the policy of Europe, which nowhere 
leaves things at perfect liberty. 

1 Wealth of Nations, Bk. I, chap. x. 



544 SELECTED READINGS IN ECONOMICS 

Part I. Inequalities arising from the Nature of the 
Employments themselves 

The five following are the principal circumstances, which, so 
far as I have been able to observe, make up for a small pecu- 
niary gain in some employments, and counterbalance a great 
one in others : I. The agreeableness or disagreeableness of the 
employments themselves ; II. The easiness and cheapness, or the 
difficulty and expense of learning them ; III. The constancy or 
inconstancy of employment in them ; IV. The small or great 
trust which must be reposed in those who exercise them ; and 
V. The probability or improbability of success in them. 

I. The ^yages of labour vary with the ease or hardship, the 
cleanliness or dirtiness, the honourableness or dishonourableness 
of the employment. Thus in most places, take the year round, a 
journeyman tailor earns less than a journeyman weaver. His 
work is much easier. A journeyman weaver earns less than a 
journeyman smith. His work is not always easier, but it is much 
cleaner. A journeyman blacksmith, though an artificer, seldom 
earns so much in twelve hours asa collier, who is only a labourer, 
does in eight. His work is not quite so dirty, is less dangerous, 
and is carried on in daylight and above ground. Honour makes 
a great part of the reward of all honourable professions. In point 
of pecuniary gain, all things considered, they are generally under- 
recompensed, as I shall endeavour to show by-and-by. Disgrace 
has the contrary effect. The trade of a butcher is a brutal and 
an odious business ; but it is in most places more profitable than 
the greater part of trades. The most detestable of all employ- 
ments, that of public executioner, is, in proportion to the quantity 
of work done, better paid than any common trade whatever. 

Hunting and fishing, the most important employments of 
mankind in the rude state of society, become in its advanced 
state their most agreeable amusements, and they pursue for 
pleasure what they once followed from necessity. In the ad- 
vanced state of society, therefore, they are all very poor who 
follow as a trade what other people pursue as a pastime. Fisher- 
men have been so since the time of Theocritus (Idyllium xxi). 



THE DISTKll'.UTJOX OF WEALTH 545 

A poacher is everywhere a very poor man in Great Britain. In 
countries where the rigour of the Law suffers no poachers, the 
licensed hunter is not in a much better condition. The natural 
taste for those employments makes more people follow them 
than can live comfortably by them, and the produce of their 
labour, in proportion to its quantity, comes always too cheap to 
market to afford anything but the most scanty subsistence to 
the labourers. 

Disagreeableness and disgrace affect the profits of stock in 
the same manner as the wages of labour. The keeper of an inn, 
never master of his own house, and exposed to the brutality of 
every drunkard, exercises neither a very agreeable nor a very 
creditable business. There is scarce any trade in which a small 
stock yields so great a profit. 

II. The wages of labour vary with the easiness and cheap- 
ness, or the difficulty and expense of learning the business. 

When an expensive machine is erected, the extraordinary 
work to be performed by it before it is worn out, it must be 
expected, will replace the capital laid out upon it, with at least 
the ordinary profits. A man educated at the expense of much 
labour and time to any of those employments which require 
exti^ordinary dexterity and skill, may be compared to one of 
those expensive machines. The work which he learns to per- 
form, it must be expected, over and above the usual wages of 
common labour, will replace to him the whole expense of his 
education, with at least the ordinary profits of an equally valu- 
able capital. It must do this too in a reasonable time, regard 
being had to the very uncertain duration of human life, in the 
same manner as to the more certain duration of the machine. 
The difference between the wages of skilled labour and those of 
common labour, is founded upon this principle. The policy of 
Europe considers the labour of all mechanics, artificers, and man- 
ufacturers, as skilled labour; and that of all country laboureis 
as common labour. It seems to suppose that of the former to 
be of a more nice and delicate nature than that of the latter. 
It is so perhaps in some cases ; but in the greater part it is quite 
otherwise as I shall endeavour to show by-and-by. The laws and 



546 SELECTED READINGS IN ECONOMICS 

customs of Europe, therefore, in order to qualify any person for 
exercising the one species of labour, impose the necessity of an 
apprenticeship, though with different degrees of rigour in differ- 
ent places. They leave the other free and open to everybody. 
During the continuance of the apprenticeship, the whole labour 
of the apprentice belongs to his master. In the meantime he 
must, in many cases, be maintained by his parents or relations, 
and in almost all cases must be clothed by them. Some money 
too is commonly given to the master for teaching him his trade. 
They who cannot give money, give time, or become bound for 
more than the usual number of years ; a consideration which, 
though it is not always advantageous to the master, on account 
of the usual idleness of apprentices, is always disadvantageous 
to the apprentice. In country labour, on the contrary, the 
labourer, while he is employed about the easier, learns the more 
difficult parts of his business, and his own labwur maintains 
him through all the different stages of his employment. It is 
reasonable, therefore, that in Europe the wages of mechanics, 
artificers, and manufacturers, should be somewhat higher than 
those of common labourers. They are so accordingly, and their 
superior gains make them in most places be considered as a 
superior rank of people. This superiority, however, is generally 
ver_^ small ; the daily or weekly earnings of journeymen in the 
more common sorts of manufactures, such as those of plain linen 
and woollen cloth, computed at an average are, in most places, 
very little more than the day wages of common labourers. Their 
employment is more steady and uniform, and the superiority of 
their earnings, taking the whole year together, may be greater. 
It seems evidently to be no greater than what is sufficient to 
compensate the superior expense of their education. Education 
in the ingenious arts and in the liberal professions, is still more 
tedious and expensive. The pecuniary recompense, therefore, 
of painters and sculptors, of lawyers and physicians, ought to be 
much more liberal: and it is so accordingly. 

The profits of stock seem to be very little affected by the 
easiness or difficulty of learning the trade in which it is em- 
ployed. All the different ways in which stock is commonly 



Tirr. insTiJir.rTiox of wealth 547 

employed in great towns, seem, in reality, to be almost equally 
easy and e(|ually dillicult to learn. One branch either of foreign 
or domestic trade, cannot well be a much more intricate busi- 
ness than another. 

III. The wages of labour in different occupations var}' with 
the constancy or inconstancy of employment. 

Employment is much more constant in some trades than in 
others. In the greater part of manufactures, a journeyman may 
be pretty sure of employment almost every day in the year that 
he is able to work. A mason or bricklayer, on the contrary, can 
work neither in hard frost nor in foul weather, and his employ- 
ment at all other times depends upon the occasional calls of his 
customers. He is liable, in consequence, to be frequently with- 
out any. What he earns, therefore, while he is employed, must 
not only maintain him when he is idle, but make him some 
compensation for those anxious and desponding moments which 
the thought of so precarious a situation must sometimes occa- 
sion. Where the computed earnings of the greater part of man- 
ufacturers, accordingly, are nearly upon a level with the day 
wages of common labourers, those of masons and bricklayers are 
generally from one-half more to double those wages. Where 
common labourers earn four and five shillings a week, masons 
and bricklayers frequently earn seven and eight ; where the for- 
mer earn six, the latter often earn nine and ten, and where the 
former earn nine or ten, as in London, the latter commonly earn 
fifteen and eighteen. No species of skilled labour, liowever, seems 
more easy to learn than that of masons and bricklayers. Chair- 
men in London, during the summer season, are said sometimes 
to be employed as bricklayers. The higli wages of those work- 
men, therefore, are not so much the recompense of their skill, 
as the compensation for the inconstancy of their employment. 

A house carpenter seems to exercise rather a nicer and more 
ingenious trade than a mason. In most places, however, for it 
is not universally so, his day-wages are somewhat lower. His 
employment, though it depends much, does not depend so en- 
tirely upon the occasional calls of his customers ; and it is not 
so \\:\\)\e to be interrupted by the weather. When the trades 



548 SELECTED HEADINGS IN ECONOMICS 

which generally afford constant employment, happen in a par- 
ticular place not to do so, the wages of the workmen always rise 
a good deal above their ordinary proportion to those of common 
labour. In London almost all journeymen artificers are liable to 
be called upon and dismissed by their masters from day to day, 
and from week to week, in the same manner as day-labourers in 
other places. The lowest order of artificers, journeymen tailors, 
accordingly, earn there half-a-crown a-day, though eighteenpence 
may be reckoned the wages of common labour. In small towns 
and country villages, the wages of journeymen tailors frequently 
scarce equal those of common labour ; but in London they 
are often many weeks without employment, particularly during 
the summer. 

When the inconstancy of employment is combined with the 
hardship, disagreeableness, and dirtiness of the work, it some- 
times raises the wages of the most common labour above those 
of the most skilful artificers. A collier working by the piece is 
supposed, at Newcastle, to earn commonly about double, and in 
many parts of Scotland about three times, the wages of com- 
mon labour. His high wages arise altogether from the hardship, 
disagreeableness, and dirtiness of his work. His employment 
may, upon most occasions, be as constant as he pleases. The 
coalheavers in London exercise a trade which in hardship, dirti- 
ness, and disagreeableness, almost equals that of colliers; and 
from the unavoidable irregularity in the arrivals of coal-ships, 
the employment of the greater part of them is necessarily very 
inconstant. If colliers, therefore, commonly earn double and 
triple the wages of common labour, it ought not to seem un- 
reasonable that coalheavers should sometimes earn four and five 
times those wages. In the inquiry made into their condition 
a few years ago, it was found that at the rate at which they 
were then paid, they could earn from six to ten shillings a day. 
Six shillings are about four times the wages of common labour 
in London, and in every particular trade the lowest common 
earnings may always be considered as l;hose of the far greater 
number. How extravagant soever those earnings may appear, if 
they were more than sufficient to compensate all the disagreeable 



THE DISTRIIJUTIOX OF WEALTH 549 

circumstances of the business, there would soon be so great 
a number of competitors as, in a trade which has no exclusive 
privilege, would quickly reduce them to a lower rate. The con- 
stancy or inconstaucy of employment cannot affect the ordi- 
nary profits of stock in any trade. Whether the stock is or 
is not constantly employed depends, not upon the trade, but 
the trader. 

IV. The wages of labour vary according to the small or great 
trust which nuist be reposed in the workmen. 

The wages of goldsmiths and jewellers are everywhere supe- 
rior to those of many other workmen, not only of equal, but of 
much superior ingenuity, on account of the precious materials 
with which they are necessarily intrusted. We trust our health 
to the physician ; our fortune, and sometimes our life and repu- 
tation, to the lawyer and attorney. Such confidence could not 
safely be reposed in people of a very mean and low condition. 
Their reward must be such, therefore, as may give them that 
rank in the society which so important a trust requires. The 
long time and the great expense which must be laid out in their 
education, when combined with this circumstance, will neces- 
sarily enhance still further the price of their labour. Wlien a 
person employs only his own stock in trade, there is no trust ; 
and the credit which he may get from other people depends, not 
upon the nature of iiis trade, but upon their opinion of his for- 
tune, probity, and prudence. The different rates of profit, there- 
fore, in the different branches of trade, cannot arise from the 
different degrees of trust reposed in the traders. 

V. The wages of labour in different employments vary accord- 
ing to the probability or improbability of success in them. 

The probability that any particular person shall ever be quali- 
fied for the employment to which he is educated, is very different 
in different occupations. In the greater part of mechanic trades 
success is almost certam, but very uncertain in the liberal pro- 
fessions. Put your son apprentice to a shoemaker, there is little 
doubt of his learning to make a pair of shoes : but send him to 
study the law, it is at least twenty to one if ever he makes such 
a proficiency as will enable him to live by the business. In a 



550 SELECTED READIN^GS IN ECONOMICS 

perfectly fair lottery, tliose who draw the prizes ought to gain 
all that is lost by those who draw the blanks. In a profession 
where twenty fail for one that succeeds, that one ought to gain 
all that should have been gained by the unsuccessful twenty. 
The counsellor-at-law who, perhaps, at nearly forty years of age, 
begins to make something by his profession, ought to receive 
the retribution, not only of his own so tedious and expensive 
education, but of that of more than twenty others who are never 
likely to make anything by it. How extravagant soever the 
fees of counsellors-at-law may sometimes appear, their real retri- 
bution is never equal to this. Compute in any particular place, 
what is likely to be annually gained, and what is likely to be 
annually spent, by all the different workmen in any common 
trade, such as that of shoemakers or weavers, and you will find 
that the former sum will generally exceed the latter. But make 
the same computation with regard to all the counsellors and 
students at law, in all the different inns of" court, and you will 
find that their annual gtiins bear but a very small proportion 
to their annual expense, even though you rate the former as 
high, and the latter as low, as can well be done. The lottery 
of the law is very far from being a perfectly fair lottery ; and 
that, as well as many other liberal and honorable professions is, 
in point of pecuniary gain, under-recompensed. Those profes- 
sions keep their level, however, with other occupations, and, 
notwithstanding these discouragements, all the most generous 
and liberal spirits are eager to crowd into them. Two different 
causes contribute to recommend them. First, the desire of the 
reputation which attends upon superior excellence in any of 
them ; and, secondly, the natural confidence which every man 
has more or less, not only in his own abilities, but in his own 
good fortune. 

To excel in any profession in which but few arrive at medioc- 
rity is the most decisive mark of what is called genius or 
superior talents. The public admiration which attends upon 
such distinguished abilities, makes always a part of their reward; 
a greater or smaller in proportion as it is higher or lower in 
degree. It makes a considerable part of that reward in the 



THE DISTKIBUTIO^' OF WEALTH 551 

profession of physic ; a still greater perhaps in that of law ; 
in poetry and philosophy it makes almost the whole. 

The over-weening conceit which the greater part of men have 
of their own abilities, is an ancient evil remarked by the philos- 
ophers and moralists of all ages. Their absurd presumption in 
their own good fortune has been less taken notice of. It is, how- 
ever, if possible still more universal. There is no man living 
who when in tolerable health and spirits, has not some share 
of it. The chance of gain is by every man more or less over- 
valued, and the chance of loss is by most men undervalued, and 
by scarce any man, who is in tolerable health and spirits, valued 
more than it is worth. 

That the chance of gain is naturally overvalued, we may learn 
from the universal success of lotteries. The world neither ever 
saw nor ever will see a perfectly fair lottery ; or one in which 
the whole gain compensated the whole loss ; because the under- 
taker could make nothing by it. In the state lotteries the tickets 
are really not worth the price which is paid by the original 
subscribers, and yet commonly sell in the market for 20, 30, 
and sometimes 40 per cent, advance. The vain hope of gaining 
some of the great prizes is the sole cause of this demand. The 
soberest people scarce look upon it as a folly to pay a small sum 
for the chance of gaining ten or twenty thousand pounds, 
though they know that even that small sum is perhaps twenty 
or thirty per cent, more than the chance is worth. In a lottery 
in which no prize exceeded £20, though in other respects it 
approached nearer to a perfectly fair one than the common state 
lotteries, there would not be the same demand for tickets. In 
order to have a better chance for some of the great prizes, some 
people purchase several tickets, and others, small shares in a 
still greater number. There is not, however, a more certain propo- 
sition in mathematics than that the more tickets you adventure 
upon, the more likely you are to be a loser. Adventure upon 
all the tickets in the lottery, and you lose for certain, and the 
greater the number of 3-our tickets, the nearer you approacli to 
this certainty. 



552 SELECTED KEADINGS IN ECONOMICS 

That the chance of loss is frequently undervalued, and scarce 
ever valued more than it is worth, we may learn from the very 
moderate profit of insurers. In order to make insurance either 
from fire or sea risk, a trade at all, the common premium must 
be sufficient to compensate the common losses, to pay the expense 
of management, and to afford such a profit as might have been 
drawn from an equal capital employed in any common trade. 
The person who pays no more than this, evidently pays no more 
than the real value of the risk, or the lowest price at which he 
can reasonably expect to insure it. But though many people 
have made a little money by insurance, very few have made a 
great fortune ; and from this consideration alone, it seems evi- 
dent enough that the ordinary balance of profit and loss is not 
more advantageous in this than in other common trades by 
which so many people make fortunes. Moderate, however, as 
the premium of insurance commonly is, many people despise 
the risk too much to care to pay it. Taking the whole kingdom 
at an average nineteen houses in twenty, or rather, perhaps, 
ninety-nine in a hundred, are not insured from fire. Sea risk is 
more alarming to the greater part of people, and the proportion 
of ships insured to those not insured is much greater. Many 
sail, however, at all seasons, and even in time of war, without 
any insurance. This may sometimes perhaps be done without 
any imprudence. When a great company, or even a great mer- 
chant has twenty or thirty ships at sea, they may, as it were, 
insure one another. The premium saved upon them all may 
more than compensate such losses as they are likely to meet with 
in the common course of chances. The neglect of insurance 
upon shipping, in the same manner as upon houses, is, in most 
cases, the effect of no such nice calculation, but of mere rashness 
and presumptuous contempt of the risk run. 

The contempt of risk and the presumptuous hope of success, 
are in no period of life more active than at the age at which 
young people choose their professions. How little the fear of 
misfortune is then capable of balancing the hope of good luck, 
appears still more evidently in the readiness of the common 
people to enlist as soldiers, or to go to sea, than in the eagerness 



THE DISTRIBUTIOX OF WEALTH 553 

of those of better fashion to enter into what are called tlie liberal 
professions. What a common soldier may lose is obvious enough. 
Without regarding the danger, however, young volunteers never 
enlist so readily as at the beginning of a war ; and though they 
have scarce any chance of preferment, they figure to themselves, 
in their youthful fancies, a thousand occasions of acquiring 
honour and distinction which never occur. These romantic 
hopes make the whole price of their blood. Their pay is less 
than that of common labourers, and in actual service their 
fatigues are much greater. 

The lottery of the sea is not altogether so disadvantageous as 
that of the army. The son of a creditable labourer or artificer 
may frequently go to sea with his father's consent ; but if he 
enlists as a soldier it is always without it. Other people see 
some chance of his making something by the one trade : nobody 
but himself sees any of his making anything by the other. The 
great admiral is less the object of public admiration than the 
great general, and the highest success in the sea service promises 
a less brilliant fortune and reputation than equal success in the 
land. The same difference runs through all the inferior degrees 
of preferment in both. By the rules of precedency a captain in 
the navy ranks with a colonel in the army ; but he does not rank 
with him in the common estimation. As the great prizes in the 
lottery are less, the smaller ones must be more numerous. Com- 
mon sailors, therefore, more frequently get some fortune and 
preferment than common soldiers, and the hope of those prizes is 
what principally recommends the trade. Though their skill and 
dexterity are much superior to that of almost any artificers, 
and though their Avhole life is one continual scene of hardship 
and danger, yet for all this dexterity and skill, for all those hard- 
ships and dangers, while they remain in the condition of common 
sailors, they receive scarce any other recompense but the pleas- 
ure of exercising the one, and of surmounting the other. Their 
wages are not greater than those of common labourers at the 
port which regulates the rate of seamen's wages. As tliey are 
continually going from port to port, the monthly pay of those 
who sail from all the different ports of Great Britain, is more 



554 SELECTED EEADINGS IN ECONOMICS 

nearly upon the level than that of any other workmen in those 
different places ; and the rate of the port to and from which the 
greatest number sail, that is the port of London, regulates that 
of all the rest. At London the wages of the greater part of the 
different classes of workmen are about double those of the same 
classes in Edinburgh. But the sailors who sail from the port 
of London seldom earn above three or four shillings a month 
more than those who sail from the port of Leith, and the differ- 
ence is frequently not so great. In time of peace, and in the 
merchant service, the London price is from a guinea to about 
seven-and-twenty shillings the calendar month. A common 
labourer in London, at the rate of 9 or 10 shillings a week, 
may earn in the calendar month from 40 to 45 shillings. The 
sailor, indeed, over and above his pay, is supplied with pro- 
visions. Their value, may not perhaps always exceed the differ- 
ence between his pay and that of the common labourer : and 
though it sometimes should, the excess will not be clear gain to 
the sailor, because he cannot share it with his wife and family, 
whom he must maintain out of his wages at home. 

The dangers and hair-breadth escapes of a life of adventures, 
instead of disheartening young people, seem frequently to recom- 
mend a trade to them. A tender mother, among the inferior 
ranks of people, is often afraid to send her son to school at a 
seaport town, lest the sight of the ships, and the conversation 
and adventures of the sailors should entice him to go to sea. 
The distant prospect of hazards, from which we can hope to extri- 
cate ourselves by courage and address, is not disagreeable to us, 
and does not raise the wages of labour in any employment. It is 
otherwise with those in which courage and address can be of no 
avail. In trades which are known to be very unwholesome, the 
wages of labour are always remarkably high. Unwholesomeness 
is a species of disagreeableness, and its effects upon the wages 
of labour are to be ranked under that general head. 

In all the different employments of stock, the ordinary rate 
of profit varies more or less with the certainty or uncertainty 
of the returns. These are, in general, less uncertain in the 
inland than in the foreign trade, and in some branches of foreign 



THE DlSTlUlJUTlOls' OF WEALTH 555 

trade than in others ; in the trade to North America, for example, 
than in that to Jamaica. The ordinary rate of profit always 
rises more or less with the risk. It does not, however, seem to 
rise in proportion to it, or so as to compensate it completely. 
Bankruptcies are most frequent in the most hazardous trades. 
The most hazardous of all trades, that of a smuggler, though 
when the adventure succeeds it is likewise the most profitable, 
is the infallible road to bankruptcy. The presumptuous hope 
of success seems to act here as upon all other occasions, and to 
entice so many adventurers into those hazardous trades, that 
their competition reduces their profit below what is suilicient 
to compensate the risk. To compensate it completely, the com- 
mon returns ought, over and above the ordinary profits of stock, 
not only to make up for all occasional losses, but to afford 
a surplus profit to the adventurers of the same nature with 
the profit of insu»ers. But if the common returns were suffi- 
cient for all, bankruptcies would not be more frequent than in 
other trades. 

Of the five circumstances, therefore, which vary the wages 
of labour, two only affect the profits of stock ; the agreeableness 
or disagreeableness of the business, and the risk or security 
with which it is attended. In point of agreeableness or disagree- 
ableness, there is little or no difference in the far greater part 
of the different employments of stock ; but a great deal in those 
of labour ; and the ordinary profit of stock, though it rises with 
the risk, does not always seem to rise in proportion to it. It 
should follow from all this, that, in the same society or neigh- 
bourhood, the average and ordinary rates of profit in the different 
employments of stock should be more nearly upon the level 
than the pecuniary wages of the different sorts of labour. They 
are so accordingly. The difference between the earnings of a 
common labourer and those of a well employed lawyer or phy- 
sician, is evidently much greater than that between the ordinary 
profits in any two different brandies of trade. The difference 
in the profits of different trades, is generally a deception arising 
from not distinguishing what ought to be considered as wages, 
from what ought to be considered as profit. 



556 SELECTED KEADINGS IN ECONOMICS 

Apothecaries' profit is become a bye-word, denoting some- 
thing uncommonly extravagant. This great apparent profit, 
however, is frequently no more than the reasonable wages of 
labour. The skill of an apothecary is a much nicer and more 
delicate matter than that of any artificer whatever; and the 
trust which is reposed in him is of much greater importance. 
He is the physician of the poor in all cases, and of the rich when 
the distress or danger is not very great. His reward, therefore, 
ought to be suitable to his skill and his trust, and it arises 
generally from the price at which he sells his drugs. But the 
whole drugs which the best employed apothecary, in a large 
market town, will sell in a year, may not perhaps cost him above 
thirty or forty pounds. Though he should sell them, therefore, 
for three or four hundred, or at a thousand per cent, profit, this 
may frequently be no more than the reasonable wages of his labour 
charged, in the only way in which he can charge them, upon 
the price of his drugs. The greater part of the apparent profit 
is wages disguised in the garb of profit. 

In a small seaport town, a little grocer will make forty or fifty 
per cent, upon a stock of a single hundred pounds, while a con- 
siderable wholesale merchant in the same place will scarce make 
eight or ten per cent, upon a stock of ten thousand. The trade 
of the grocer may be necessary for the conveniency of the inhabit- 
ants, and the narrowness of the market may not admit the em- 
ployment of a larger capital in the business. The man, however, 
must not only live by his trade, but live by it suitably to the 
qualifications which it requires. Besides possessing a little 
capital, he must be able to read, write and account, and must 
be a tolerable judge too of perhaps fifty or sixty different sorts 
of goods, their prices, qualities, and the markets where they 
are to be had cheapest. He must have all the knowledge, in 
short, that is necessary for a great merchant, which nothing 
hinders him from becoming but the want of a sufficient capital. 
Thirty or forty pounds a year cannot be considered as too 
great a recompense for the labour of a person so accomplished. 
Deduct this from the seemingly great profits of his capital, and 
little more will remain, perhaps, than the ordinary profits of 



1 



THE DISTRIBUTION OF WEALTH 557 

stock. The greater part of the apparent profit is, in this case 
too, real wages. 

The difference between the apparent profit of the retail and 
that of the wholesale trade, is much less in the capital than in 
small towns and country villages. Where ten thousand pounds 
can be employed in the grocery trade, the wages of the grocer s 
labour make but a ver}' trifling addition to the real profits of the 
wealthy stock. The apparent profits of the wealthy retailer, 
therefore, are there more nearly upon a level with those of the 
wholesale merchant. It is upon this account that goods sold by 
retail are generally as cheap and frequently much cheaper in the 
capital than in small towns and country villages. Grocery goods, 
for example, are generally much cheaper ; bread and butcher's- 
meat frequently as cheap. It costs no more to bring grocery goods 
to the great town than to the country village ; but it costs a great 
deal more to bring corn and cattle, as the greater part of them 
must be brought from a much greater distance. The prime costs 
of grocery goods, therefore, being the same in both places, they 
are cheapest where the least profit is charged upon them. The 
prime cost of bread and butcher's-meat is greater in the great 
town than in the country village ; and though the profit is less, 
therefore they are not always cheaper there, but often equally 
cheap. In such articles as bread and butcher's-meat, the same 
cause which diminishes apparent profit, increases prime cost. 
The extent of the market, by giving employment to greater 
stocks, diminishes apparent profit ; but by requiring supplies 
from a greater distance, it increases prime cost. This diminution 
of the one and increase of the other seem, in most cases, nearly 
to counterbalance one another ; wliich is probably the reason 
that, though the prices of corn and cattle are commonly very 
different in different parts of the kingdom, those of bread and 
butcher's-meat are generally very nearly the same through the 
greater part of it. 

Though the profits of stock both in the wholesale and retail 
trade are generally less in the capital than in small towns and 
country villages, yet great fortunes are frequently acquired from 
small beginnings in the former, and scarce ever in the latter. In 



558 SELECTED READINGS IN ECONOMICS 

small towns and cQuntiy villages, on account of the narrowness 
of the market, trade cannot always be extended as stock extends. 
In such places, therefore, though the rate of a particular person's 
profits may be very high, the sum or amount of them can never 
be very great, nor consequently that of his annual accumulation. 
In great towns, on the contrary, trade can be extended as stock 
increases, and the credit of a frugal and thriving man increases 
much faster than his stock. His trade is extended in proportion 
to the amount of both, and the sum or amount of his profits is in 
proportion to the extent of his trade, and his annual accumulation 
in proportion to the amount of his profits. It seldom happens, 
however, that great fortunes are made even in great towns by any 
one regular, established, and well-known branch of business, but 
in consequence of a long life of industry, frugality, and attention. 
Sudden fortunes, indeed, are sometimes made in such places by 
what is called the trade of speculation. The speculative merchant 
exercises no one regular, established, or well-known branch of 
business. He is a corn merchant this year, and a wine merchant 
the next, and a sugar, tobacco, or tea merchant the year after. 
He enters into every trade when he foresees that it is likely to 
be more than commonly profitable, and he quits it when he fore- 
sees that its profits are likely to return to the level of other trades. 
His profits and losses, therefore, can bear no regular proportion 
to those of any one established and well-known branch of busi- 
ness. A bold adventurer may sometimes acquire a considerable 
fortune by two or three successful speculations ; but is just as 
likely to lose one by two or three unsuccessful ones. This trade 
can be carried on nowhere but in great towns. It is only in places 
of the most extensive commerce and correspondence that the 
intelligence requisite for it can be had. 

The five circumstances above mentioned, though they occasion 
considerable inequalities in the wages of labour and profits of 
stock, occasion none in the whole of the advantages and disad- 
vantages, real or imaginary, of the different employments of 
either. The nature of those circumstances is such, that they 
make up for a small pecuniary gain in some, and counterbalance 
a great one in others. 



THE DISTRIBUTION OF WEALTH 559 

In order, however, that this equality may take place in the 
whole of their advantages or disadvantages, three things are 
requisite even where there is the most perfect freedom. First, 
the employments must be well known and long established in 
the neighbourhood ; secondly, they must be in their ordinary or 
what may be called their natural state ; and, thirdly, they must 
be the sole or principal employments of those who occupy them. 

I. This equality can take place only in those employments 
which are well known, and have been long established in the 
neighbourhood. 

Where all other circumstances are equal, wages are generally 
higher in new than in old trades. When a projector attempts to 
establish a new manufacture, he must at first entice his workmen 
from other employments by higher wages than they can either 
earn in their own trades, or than the nature of his work would 
otherwise require, and a considerable time must pass away before 
he can venture to reduce them to the common level. Manu- 
factures for which the demand arises altogether from fashion and 
fancy, are continually changing, and seldom last long enough to 
be considered as old established manufactures. Those, on the 
contrary, for which the demand arises chiefly from use or neces- 
sity, are less liable to change, and the same form or fabric may 
continue in demand for whole centuries together. The wages of 
labour, therefore, are likely to be higher in manufactures of the 
former, than in those of the latter kind. Birmingham deals chiefly 
in manufactures of the former kind ; Sheflield in those of the lat- 
ter ; and the wages of labour in those two different places, are 
said to be suitable to this difference in the nature of their 
manufactures. 

The establishment of any new manufacture, of any new branch 
of commerce, or of any new practice in agriculture, is always a 
speculation, from which the projector promises himself extraor- 
dinary profits. These profits sometimes are very great, and some- 
times, more frequently perhaps, they are quite otherwise ; but 
in general they bear no regular proportion to those of other old 
trades in the neighbourhood. If the project succeeds, they are 
commonly at first very high. When the trade or practice becomes 



560 SELECTED READINGS IN ECONOMICS 

thoroughly established and well known, the competition reduces 
them to the level of other trades. 

II. This equality in the whole of the advantages and disad- 
vantages of the different employments of labour and stock, can 
take place only in the ordinary, or the natural state of those 
employments. 

The demand for almost every different species of labour is 
sometimes greater and sometimes less than usual. In the one 
case the advantages of the employment rise above, in the other 
they fall below, the common level. The demand for country 
labour is greater at hay-time and harvest, than during the greater 
part of the year ; and wages rise with the demand. In time of 
war, when forty or fifty thousand sailors are forced from the 
merchant service into that of the king,- the demand for sailors to 
merchant ships necessarily rises with their scarcity, and their 
wages upon such occasions commonly rise from a guinea and 
seven-and-twenty shillings, to forty shillings and three pounds 
a month. In a decaying manufacture, on the contrary, many 
workmen, rather than quit their old trade, are contented with 
smaller wages than would otherwise be suitable to the nature of 
their employment. 

The profits of stock vary with the price of the commodities in 
which it is employed. As the price of any commodity rises above 
the ordinary or average rate, the profits of at least some part of 
the stock that is employed in bringing it to market, rise above 
their proper level, and as it falls they sink below it. All com- 
modities are more or less liable to variations of price, but some are 
much more so than others. In all commodities which are pro- 
duced by human industry, the quantity of industry annually em- 
ployed is necessarily regulated by the annual demand, in such 
a manner that the average annual produce may, as nearly as 
possible, be equal to the average annual consumption. In some 
employments, it has already been observed, the same quantity 
of industry will always produce the same, or very nearly the 
same quantity of commodities. In the linen or woollen manu- 
factures, for example, the same number of hands will annually 
work up very nearly the same quantity of linen and woollen 



THE D18TRIBUTI0N OF WEALTH 561 

cloth. The variations in the market price of such commodities, 
therefore, can arise only from some accidental variation in the 
demand. A public mourning raises the price of black cloth. 
But as the demand for most sorts of plain linen and woollen 
cloth is pretty uniform, so is likewise the price. But there are 
other employments in which the same quantity of industry will 
not always produce the same quantity of commodities. The same 
quantity of industry, for example, will, in different years, pro- 
duce very different quantities of corn, wine, hops, sugar, tobacco, 
etc. The price of such commodities, varies not only with the 
variations of demand, but with the much greater and more fre- 
quent variations of quantity, and is extremely fluctuating. But 
the profit of some of the dealers must fluctuate with the price 
of the commodities. The operations of the speculative merchant 
are principally employed about such commodities. He endeav- 
ours to buy them up when he foresees that their price is likely 
to rise, and to sell them when it is likely to fall. 

III. This equality in the whole of the advantages and dis- 
advantages of different employments of labour and stock, can 
take place only in such as are the sole or principal employments 
of those who occupy them. 

When a person derives his substance from one employment, 
which does not occupy the greater part of his time ; in the inter- 
vals of his leisure he is often willing to work at another for less 
wages than would otherwise suit thd nature of the employment. 

There still subsists in many parts of Scotland a set of people 
called cotters or cottagers, though they were more frequent some 
years ago than they are now. They are a sort of out-servants of 
the landlords and farmers. The usual reward which they receive 
from their masters is a house, a small garden for pot herbs, as 
much grass as will feed a cow, and, perhaps, an acre or two of 
bad arable land. When their master has occasion for their labour, 
he gives them, besides, two pecks of oatmeal a week, worth about 
fifteen-pence sterling. During a great part of the year he has 
little or no occasion for their labour, and tiie cultivation of their 
own little possession is not sullieient to occupy the time which 
is left at their own disposal. When such occupiers were more 



562 SELECTED EEADINGS IN ECONOMICS 

numerous than they are at present, they are said to have been 
willing to give their spare time for a very small recompense to 
any body, and to have wrought for less wages than other labourers. 
In ancient times they seem to have been common all over Europe. 
In countries ill cultivated and worse inhabited, the greater part 
of landlords and farmers could not otherwise provide themselves 
with the extraordinary number of hands, which country labour 
requires at certain seasons. The daily or weekly recompense 
which such labourers occasionally received from their masters, 
was evidently not the whole price of their labour. Their small 
tenement made a considerable part of it. This daily or weekly 
recompense, however, seems to have been considered as the whole 
of it, by many writers who have collected the prices of labour 
and provisions in ancient times, and who have taken pleasure in 
representing both as wonderfully low. 

The produce of such labour comes frequently cheaper to mar- 
ket than would otherwise be suitable to its nature. Stockings 
in many parts of Scotland are knit much cheaper than they can 
anywhere be wrought upon the loom. They are the work of 
servants and labourers, who derive the principal part of their 
subsistence from some other employment. More than 1000 
pair of Shetland stockings are annually imported into Leith, 
of which the price is from fivepence to sevenpence a pair. At 
Lerwick, the small capital of the Shetland islands, tenpence a 
day is a common price of common labour. In the same islands 
they knit worsted stockings to the value of a guinea a pair 
and upwards. 

In opulent countries the market is generally so extensive, that 
any one trade is sufficient to employ the whole labour and stock 
of those who occupy it. Instances of people's living by one em- 
ployment, and at the same time deriving some little advantage 
from another, occur chiefly in poor countries. The following 
instance, however, of something of the same kind is to be found 
in the capital of a very rich one. There is no city in Europe, I 
believe, in which house rent is dearer than in London, and yet I 
know no capital in which a furnished apartment can be hired 
so cheap. Lodging is not only much cheaper in London than in 



THE DISTRIBUTION OF WEALTH 563 

Paris ; it is much cheaper tliaii in Edinburgh of the same degree 
of goodness ; and what may seem extraordinary, the dearness of 
house rent is the cause of the cheapness of lodging. The dear- 
ness of house rent in London arises not only from those causes 
which render it dear in all great capitals, the dearness of labour, 
the dearness of all the materials of building, which must generally 
be brought from a great distance, and above all the dearness of 
ground rent, every landlord acting the part of a monopolist, and 
frequently exacting a higher rent for a single acre of bad land in 
a town, than can be had for a hundred of the best in the country ; 
but it arises in part from the peculiar manners and customs of 
the people, which oblige every master of a family to hire a whole 
house from top to bottom. A dwelling house in England means 
everything that is contained under the same roof. In France, 
Scotland, and many other parts of Europe, it frequently means 
no more than a single story. A tradesman in London is obliged 
to hire a whole house in that part of the town where his customer 
live. His shop is upon the ground floor, and he and his family 
sleep in the garret ; and he endeavours to pay a part of his house 
rent by letting the two middle stories to lodgers. He expects 
to maintain his family by his trade, and not by his lodgers. 
Whereas, at Paris and Edinburgh, the people who let lodgings 
have commonly no other means of subsistence ; and the price 
of the lodging must pay, not only the rent of the house, but the 
whole expense of the family. 

4. Historical Changes in the Rate of Interest' 

In all discussions of the subject of interest the practical ques- 
tion is. How nuich must the debtor pay the creditor for the use 
of capital, or wdiat is the amount of interest? For a long time 
it has been customary to compare the money value of the capi- 
tal loaned with the money value of the monthly or yearly 
interest, and to express the latter as a percentage of the former. 

' By Gustav f^chmoller. Reprinted, by consent of the author and piibhsher, 
from Srlimollei's OriiiKhiss der allgemeiuen Volkswirthscbaftslehre, II [Duncker 
and Iluniblot, Leipzig, 1004]. 



564 SELECTED EEADINGS IN ECONOMICS 

The figure thus computed is called the rate of interest, and 
to-day interest is universally reckoned by years and percentages. 

We have already presented many facts concerning the rate of 
interest in the section dealing M^ith the development of the law 
relating to credit transactions, yet this material related chiefly 
to attempts to regulate the rate of interest by law. We now 
confront the question, What was the actual movement of the 
rate of interest ? We shall seek to present the material in brief 
and summary fashion, and shall confine ourselves to the so-called 
customary rate of interest in ordinary business transactions, for 
long-time loans and under ordinary investment conditions. . . . 

It is well known that an interest rate of from 50 to 80 per 
cent has existed, and still exists, among uncivilized peoples. 
For Greece, in her most flourishing days, von Miiller tells us 
that the normal rate varied from 12 to 18 per cent, and that in 
maritime loans it rose to 33 per cent. In Rome we have 
already seen that the Twelve Tables sought to lower the rate 
to 10 per cent, and that Marcus Brutus exacted 48 per cent 
from provincials. According to Billeter, the rate was 50 per 
cent about 50 B.C. ; and it sank to 4 per cent in the time of 
A^igustus, rose from 5 to 6 per cent between the time of Trajan 
and that of Marcus Aurelius, and soon after that declined to 4 
and even 3^ per cent. From 400 a.d. to 1000 a.d. the rate of 
interest rose again to very high figures. During the Middle Ages 
50 per cent was charged frequently in loans of grain. Roscher 
states that in 1228 in Verona the legal rate for loans of money 
was 12.5 per cent; that in Modena in 1270 it was 20 per cent; 
that in Brescia in 1268 it was 10 per cent; that Frederick II 
vainly sought to lower it to 10 per cent in Naples ; and that 
in Florence in 1470 the Jews were forbidden to take more than 
20 per cent. For France, d'Avenel thinks it safe to say that the 
rate for free capital was about 20 per cent prior to 1500, that 
land and houses were rented upon a 10 per cent basis, and 
that in other cases the rate seems to have ranged from 11 to 45 
per cent. The French rate was higher than the Italian or the 
German. In England the legal rate was 10 per cent until 1600, 
but Lombards and Jews demanded even double that amount. 



THE DISTKIBUTIOX OF WEALTH 565 

For Germany, according to the investigations of Neumann, 
Pauli, Stobbe, and others, we can assume a rate of or 10 per 
cent in the Rhine valley in the thirteenth century, and a con- 
siderably higher rate in the eastern part of the country. In the 
fourteenth century the rate was somewhat lower, in the fifteenth 
it ranged in many places from 5 to 8 per cent, and in the six- 
teenth from 5 to 6 per cent. The Rhenish towns permitted the 
Jews to charge from 33 to 43 per cent in 1255; and similar, 
and even higher, rates were charged for small " weekly loans " 
up to the year 1500. In Alsace a rate of 4 or 5 per cent is 
found from 1400 onward. 

In France the rate of interest fell in the sixteenth century, 
yet it still stood at 6 or 6^ per cent. In the seventeenth century 
it rose again to 6 or 8 per cent, falling to 5 per cent in the eight- 
eenth century. In 1766 the government forbade a reduction to 
4 per cent, just as the city council of Basel from 1677 to 1682 
opposed a reduction to 31^ or 4 per cent, maintaining that the 
rate of 5 per cent was divinely ordained. In Germany the rate 
remained at 5 per cent until 1620. In England it stood at 6 or 
8 per cent about 1700. On the authority of Child, Roscher 
states that in 1660 the rate of interest was 3 per cent in Italy 
and Holland, 7 per cent in France, 10 per cent in Scotland, 12 
per cent in Ireland, 10 or 12 per cent in Spain, and 20 per cent 
in Turkey. 

In 1737 the 3 per cent securities of the English government 
sold at 107 ; and in Germany a rate of 3 per cent is found in 
exceptional cases in the eighteenth century, as in (iiHtingen. 
In Holland, however, the rate fell quite generally to 2^ per 
cent. In all countries it tended to rise during the wars follow- 
ing the French Revolution ; and this continued until 1820, 
Russia, France, and Austria, at least, being obliged to pay from 
7 to 9 per cent upon their public loans between 1814 and 1820, 
while Prussia paid 5 or 6 per cent. At this period the (ierman 
rate on mortgage loans stood at 4 per cent in the Rhine dis- 
tricts, and elsewhere at 5 or 6 per cent and even higher. 

From 1820 to 1845, apart from temporary upward movements 
in 1830 and 1831, the rate of interest steadily declined in 



566 SELECTED READINGS IN ECONOMICS 

western Europe, — generally from 5 to 3|^ per cent on the best 
public securities and mortgages. For the better class of securi- 
ties it stood at a similar figure in the wealthiest places; while 
in southern Germany it was 4 per cent, and in the eastern 
provinces 5 per cent. Great reductions in the interest on public 
loans occurred between 1830 and 1845. In Austria, too, the 
government was paying not quite 4 per cent in the latter year. 

From 1845 to 1871 a reactionary movement again set in. In 
this epoch of railroad construction, of the rapid introduction of 
machinery, and of general economic expansion the rate of 
interest rose from 3|- to 5 per cent. Until 1848, and again 
from 1851 to 1853, it was about 4 per cent ; then in 1854, on 
the outbreak of the Crimean War, it rose to 5 per cent. After 
that it declined somewhat until in 1863 and 1864 it rose again, 
and continued to rise until 1871. Upon the basis of the market 
quotations of their securities for a period of twenty months, 
various governments were paying the following rates of interest 
about 1863: Prussia, 4.4 per cent; Russia, 5.5; Italy, 6.8; 
Austria, 6.9. From 1860 to 1871 the outflow of capital to 
countries where high rates of interest ruled, assumed large 
proportions. Many capitalists came to look for a rate of from 
5 to 7 per cent. In western Germany, indeed, the rate of 
mortgage interest stood at 3 or 4 per cent during the sixties, 
but in eastern Germany it was 6 or 7 per cent. Such conditions 
led to the founding of numerous mortgage banks. 

From 1873, and particularly 1875 onward, the rate of 
interest declined once more. -By 1884 the decline amounted to 
1 per cent, and by 1895 a further decline of 1|- per cent had 
occurred. States that had formerly paid 6 or 7 per cent 
raised capital at 4 or 4^ per cent. Railroad construction and 
fixed investments in manufacturing enterprises had somewhat 
slackened. After 1885 a new period of debt conversions began, 
similar to the period 1830 to 1835. According to Neymark, 
between 1889 and 1896 the civilized countries converted 62.4 
milliards of loans into securities bearing a lower interest, so 
that creditors submitted to an annual loss of one milliard of 
income. The creditors of Great Britain received 2| per cent 



THE DISTRIBUTION OF WEALTH 5G7 

from 1888 to 1903, ancl from 1903 to 1923 will receive 2^ per 
cent. In the United States, too, the rate for perfectly secure 
investments sank to 2^ per cent,^ and in central Europe it fell 
to 3 per cent. The French government's 3 per cent rcntea were 
quoted in 1894 at 99.9, in 1897 at 103.1; while the 3 per cent 
Piussian and German imperial loans had reached par by 1895. 
But from 1895 to 1900 the great expansion of business led to 
another increase of interest rates, noticeably in (Jermany and to 
a less degree in England and France. In 1900 the French 
rentes fell to 99.5 ; and in 1899 the Prussian securities were 
quoted at 87.25, a fact which was due to the peculiar condi- 
tions of the German money market and its excessive demands 
for capital. 

Upon the whole, both the commercial and the general rates 
of interest fall in periods of lessened business activity, such as 
that from 1880 to 1895, and rise in times of expansion, such as 
the years 1895 to 1900. Yet these fluctuations do not prevent 
a general decline over long periods of time. It is not incon- 
ceivable that, just as the rate of interest fell to 3 per cent 
in the eighteenth century, and to 2^ or 2^^ per cent in the 
nineteenth, so in the twentieth century it will fall below 2 per 
cent, — possibly even 1^ per cent. 

In this summary no mention has been made of a multitude 
of minor and temporary fluctuations, since our purpose has 
been to give a general historical survey of the subject. Nor do 
the few facts here presented convey a sufficient idea of the 
local diversity in interest rates. Even to-day these difl'erences 
are extremely great in Europe . . . ; in one place from 2 to 3 
per cent is paid, and in another from 6 to 10, while commissions, 
allowances, and other charges complicate the matter. . . . 
Here we are interested primarily with the great historical fact 
of a reduction in the rate of interest from 50 to 3^^ and even 
2.\ per cent; or, if we consider only the richer countries and 

1 It should be observed in this connection that while the United States has 
refunded much of its debt upon even a 2 per cent basis, this figure does not 
actually measure tlie rate of interest on public loans. United States bonds are 
useil as security for bank notes and public deposits, and this fact accounts for 
the low nominal interest they bear. — Ei>. 



568 SELECTED EEABIKGS IN ECONOMICS 

the last five centuries, a reduction from 10 to 2| per cent. 
These figures reveal one of the greatest changes that have ever 
occurred in economic life, technique, and social relations. 

5. The Distribution of Urban Land Values^ 

Value in urban land is the resultant of economic or ground 
rent capitalized. Economic rent in urban land, as in agricultural 
land, measures its intrinsic or " original and indestructible " 
powers. Since the sole function of urban land is to furnish 
area on which buildings may be erected, economic rent meas- 
ures the superiority of any location over the poorest location 
within the same city. Any utility may compete for any loca- 
tion within a city, and all land goes to the highest bidder ; but 
the limited suitability, due to natural or acquired causes, of 
different areas for different purposes, is so marked that much 
land has but one utility. Here whatever competition there is 
will be among those of the same class of utilization. Where, 
owing to increase or decrease of various utilizations, their area 
and location change, competition among different classes of 
utilization arises. Practically all land within a city earns some 
economic rent, though it may be small, the final contrast being 
with the city's rentless circumference. 

Economic rent is ascertained by deducting from the gross 
earnings of land and buildings, first, all taxes, insurance, repairs, 
and operating expenses, and next, average interest on the capital 
invested in the building. To make a correct showing the build- 
ings must be suited to the location and managed with ordinary 
ability, or the apparent economic rent will have little or no 
bearing on the value of the land. 

The rate of capitalization is based on the average interest 
rates of all investments, and fluctuates in general with them, 
although within closer limits and more slowly. Wide differ- 
ences occur in the rates of capitalization of rents from land of 
different uses in the same city and smaller differences between 

1 By Richard M. Hurd. Reprinted, hy consent of the author and the editors, 
from the Yale Eeview, August, 1902. 



THE DISTRIBUTION OF WEALTH 569 

land having the same use in different cities. The stability of 
rents is the most vital point affecting the rate of capitalization, 
the minor factors being ease of convertibility and the attractive 
or unattractive character of utilization. In the same way that 
the rates of capitalization vary as tg securities, government 
bonds selling below a 2 per cent basis, railroad bonds on a 3^ 
per cent to 4 per cent basis, railroad stocks on a 4 per cent to 
5 per cent basis, and industrials on a 7 per cent to 10 per cent 
basis, the rates of capitalization of urban rents vary between 4 
per cent for the highest-class property in the largest cities, 
5 per cent for second-grade property in the same cities, or for 
first-grade property in large cities, 6 per cent for third-grade 
property in the largest cities or the best property in small cities, 
7 per cent, 8 per cent, and 10 per cent for tenements in the 
largest cities, and from 12 per cent to 18 per cent for temporary 
utilizations or disreputable purposes in the smaller cities. In 
general the larger the city and the higher the class of property, 
the greater the stability of rents, and ease of convertibility, and 
the lower the rate of capitalization. 

Differences in rent are plainly apparent, but differences in 
rates of capitalization are not so generally taken account of, 
although a very large proportion of value in urban land comes 
from a low rate of capitalization. To illustrate, of two pieces 
of land yielding each an economic rent of $10,000 annually, one 
well located and improved with office building or retail shop 
might sell, excluding the building, on a 4 per cent basis, or for 
!tf2o0,000, while the other, covered with cheap tenements, 
might sell, excluding the buildings, on a 10 per cent basis, or 
for 8100,000. Where high prices are paid for land covered 
with buildings fully rented but yielding no net income, the 
basis of value is the estimated economic rent when the land is 
fully improved with modern buiklings. An addendum to the 
formula to cover the value of improperly improved or vacant 
land may be made as follows: Value is the resultant of the 
capitalization of the estimated future economic rent under the 
highest utilization. For example, land on W^all Street, covered 
with old four-story buildings fully rented, but yielding no net 



570 SELECTED READINGS IN* ECONOMICS 

income, recently sold for about flOO per square foot, the basis 
being the estimated earning power of the land improved with 
modern buildings. 

Eliminating the individual and special causes controlling the 
location of small settlements, commerce and industry, operating 
on the basic material of topography, establish three principal 
types of city according to the method of transportation which 
first serves them. All settlements spring from other settlements 
and start at the most convenient point of contact with the outer 
world, this being usually a wharf where deep water and a high 
bank meet, if transportation is by water, the intersection of 
turnpikes topographically located, if transportation is by wagon, 
and a railroad depot placed for the convenient shipping of 
products, if transportation is by rail. At the start external fac- 
tors control the internal structure of cities, the first buildings 
clust^ing around the first transportation terminal. Whatever 
the type of city, growth consists of movement away from the 
point of origin and is of two kinds : central, or in all direc- 
tions, and axial, or along the water courses, railroads, and turn- 
pikes which form the framework of the city. Electric street 
railroads and suburban railroads have greatly stimulated axial 
growth, producing star-shaped cities by contrast with the more 
circular form of the ancient walled towns. The chief modifica- 
tion of the shape of cities comes from the distorting effect of 
severe topographical faults, such as water surfaces or sharp 
elevations. 

Starting with the origin of any city, utility in land arises 
when the first buildings are erected, but until there is economic 
rent there is no value in the land. Thus in New York, " Each 
settler was permitted to build his house where he pleased and 
to surround it by an inclosure of any convenient shape and 
size." ^ Also in Los Angeles, " Any one who wished a piece of 
land, either for building a home or for cultivation, applied to 
the ayuntamiento and received oral permission to go ahead and 
do whatever he pleased as long as he did not interfere with his 

1 History of Eeal Estate Building and Arcliitecture in New York City, 1898, 
p. 4. 



THE DISTRIBUTION OF WEALTH 571 

neighbor." ^ Later, when population increases so that lots less 
conveniently located are utilized, economic rent measures such 
advantage, and value arises, the prices for land being at first 
nominal, varying from $10 to $100 a lot. An apparent excep- 
tion to the general law of no value in the site when the city 
starts, occurs where cities are speculatively undertaken and the 
future is discounted, lots selling at comparatively high prices 
in advance of utility. The difference between price and value 
is usually demonstrated before many years, the swing of the 
pendulum carrying these lots as far below their value as prices 
were formerly above it. Thus lots in Columbus, Ohio, which 
sold in 1812 at $200 to $300, sold in 1820 at $7 to $20,2 and 
of recent instances there are many, such as the collapses in the 
early history of the speculatively started towns of West Superior, 
Wisconsin ; Tacoma, Washington ; Everett, Washington ; and 
Birmingham, Alabama. The attempt to force economic rent 
from city land seems to be uniformly unsuccessful, history 
showing that cities grow and are not made, and that human 
beings cannot be uprooted and moved in large numbers and 
immediately adjust themselves to the new opportunities of a 
new environment. 

The total value of the site of a city is broadly based on popu- 
lation and wealth, the physical city being the reflex of the total 
social activities of its inhabitants. The distribution of value 
follows closely after the distribution of utilities, the problem 
involving a classification of utilities, of the causes which influ- 
ence their location, and of the resulting scale of values which 
they normally produce. 

In villages of but a few hundred population, land may 
sell by the acre, and include some agricultural features ; but 
when the population has increased to a few thousand a busi- 
ness center arises, the residences become separated from it and 
are driven to the circumference, and values run from $10 a 
front foot for residence property up to $100 or $150 a front 
foot for business property. 

1 C. D.Willard, History of Los Angeles, p. 17G [1901]. 

2 J. H. ytuder, History of Columbus, p. 25 [1873]. 



572 SELECTED READINGS IN ECONOMICS 

The smaller cities of under fifty thousand population exhibit 
normally along transportation lines a warehouse and wholesale 
section, which changes into a manufacturing section as the city 
is left, a retail-shopping district at the center, adjoining it an 
indeterminate zone utilized for institutions and boarding houses, 
then an outer zone of high grade or medium residences, and 
jfinally laborers' cottages at the periphery. 

As cities grow, increasing specialization in business causes 
new subdivisions in the industrial organization whose integration 
tends continually to greater complexity in the city's structure. 

Hence in the largest cities there arise many centers for vari- 
ous classes of business, a banking center, women's shopping 
centers, artisans' shopping centers, wholesale-retail centers, 
manufacturing specialized in small centers, amusement centers, 
club centers, and residence districts, divided into many grades, 
from the tenement sections near the factories and docks to the 
fashionable sections near the parks, while the axes of traffic run 
out in all directions from the city's center and carry retail 
shops of different grades through residence districts, the gen- 
• eral result being great complexity in detail, with fairly simple 
and uniform succession of districts. Whatever the size or 
shape of a city the order of dependence of one utility upon 
another remains the same, as exhibited by the pursuit of the 
residence sections of different classes by the shops of similar 
classes which supply them, the following of the higher whole- 
sale houses after retail shops which are their customers, and the 
slow advance of the banking and office section into the older 
retail or wholesale districts. The general characteristic of a 
business district is to move slowly and continuously from the 
point of origin, while residences, attracted by turnpikes or 
street railroads, move more rapidly, leavmg sometimes vacant 
or otherwise utilized land behind them. 

Change is a law of life, and since utilities in cities continually 
shift in location and area, the value of all urban land is in a 
state of unstable equilibrium. Change occurs not only at the 
circumference but throughout the whole area of the city, 
outward growth being due both to pressure from the center and 



1 



THE DISTRIIJUTION OF AVEALTH 573 

to aggregation at the edges. The method of progression in the 
outward pressure of one zone upon another is not always a supe- 
rior utility displacing an inferior, since in some cases a superior 
utility moves on and leaves behind a vacuum, into which an 
inferior utility moves. Outlying residence districts, in propor- 
tion to their mass, quality, and distance from the center, exert 
an attracting force upon it, unless modified by topography. 

In examining the distribution of values in some typical cities 
we may divide the land into two principal classes : business 
land and residence land, giving less consideration to land used 
for manufacturing, transportation, and special purposes, which, 
although having occasional high prices, lacks convertibility and 
has a more variable scale of values. 

In the series of plats submitted the figures are intended to 
represent the value per front foot of the corners, except for 
New York, where the value per square foot is given, the naked 
land alone being valued and it being assumed that all lots are 
of the same depth, from 100 to 120 feet. An average valuation 
only can be given for the intersection of two streets, although 
the value of four corners often varies from 30 to 70 per cent. 
The value of inside property adjacent to these corners is almost 
always lower and may be figured at 25 per cent to 50 per cent 
less. The many variations which occur in adjacent lots are too 
complex to show on a small plat, the figures given being 
approximations based as far as possible on actual sales and 
known rentals. 

Salt Lake City (population 53,531) is located where the 
ISIormon trail through Emigration Pass reached the valley 
floor of the Great Salt Lake, and was laid out to the east of the 
river Jordan. The first dwellings were erected on the block 
bounded by Third and Fourth streets south, and Second and 
Third streets west, but the first store was erected at the inter- 
section of Main Street and First South, this comer being now 
the second in value in the city. The Mormon Temple was the 
center around which the early life of the city revolved, and 
probably the reason that Main Street has always ^ been the 
1 R. F. Burton, The City of the Sainta, p. 201 [1862]. 



574 



SELECTED READINGS IN ECONOMICS 



principal street is because it ran from the city to the temple, 
and to Brigham Young's tithing yard on the adjacent block. 

The chief peculiarity of the original plat^ is the size of the 
blocks, which are 660 feet square, as compared with normal 
blocks of about 300 feet square. This results in one fourth as 
many corners in Salt Lake City as in the normal city, so that 
the two good intersections, those of Main Street with South 




First and South Second streets, have an abnormal value reach- 
ing $1800 per front foot. The further results are to concen- 
trate business, on account of the small number of streets lead- 
ing away from the center, and to remove almost all the value 
from a tract 400 feet square at the center of each block, since a 
depth of only 100 to 120 feet can be utilized. Thus we find in 
a distance of 300 feet a drop from $1800 to $75 a foot, owing 
to the non-accessibility of the interior locations. 

1 Stanbury's Eeport on Salt Lake, 185S, p. 126. 



TH?: DISTRir.rTTOX OF AVKAl/ni 



Residences normally seek moderate hills, and in Salt Lake 
City the best residence district stretches east from the business 
center along the hill to the military reservation, the values 




being highest on South Temple Street, tlie approach to the 
residence section, and diminishing to the north as the hill is 
climbed and to the east in proportion to distance. The level 



THE DISTRIBUTION OF WEALTH 



577 



plain south of South Temple Street is more or less built up with 
moderate-class residences, values in general diminishing in 
proportion to distance. 

Seattle (population 80,671) started at the Yesler saw mill at 
the foot of Yesler Way. Formerly First Avenue was the prin- 
cipal street, Second Avenue beginning to rival it after its 
regrading in 1890. The growth of the best residence section 




on the first hill east of the business section has exerted a lateral 
attraction, which, added to the growth of the city north and the 
development of Pike Street, has moved the higher general scale 
of values to Second Avenue and has recently with the aid of 
the new Post Othce lifted values on Third Avenue. A whole- 
sale and manufacturing district has been developed south of 
Yesler Way on made land, with values running from $400 to 



578 SELECTED READINGS IN ECONOMICS 

$1000, this district being continually extended by filling in the 
tide flats. In the distribution of residences in hilly (;ities the 
value curve follows closely the elevation curve, with the general 
scale diminishing in proportion to distance from the cemter. In 
Seattle the top of the first hill overlooking the city runs from 
$50 to $80 per front foot, the side of the hill being given up to 
boarding houses and institutions. Back of the first hill lies a 
hollow, with values running from $15 to $20 per front foot, 
while further out on the second hill values run up to $35. The 
hills to the north, being farther away and not being as fashion- 
able as the first hill to the east, vary from $25 to $50 per foot, 
and the small hill to the south, owing to the bad approach and 
the view over the tide flats and the manufacturing section, 
varies from $10 to $15 per foot. 

******** 

Atlanta (population 89,872) furnishes one of the few examples 
of an inland city whose site is not intersected by a water course. 
In its origin and growth it has been purely a railroad town, the 
Union Depot being practically the starting point of the city. 
Two main turnpikes were laid out, Marietta and Decatur streets 
east and west, Peachtree and Whitehall streets north and south, 
whose intersection has only recently acquired the highest values 
in the city. The bulk of the population first located south of 
the railroad tracks, possibly owing to the location there of the 
state capitol, county courthouse, and city hall, and White- 
hall Street, between Mitchell and Alabama, still remains the 
principal women's shopping street. The development of Peach- 
tree Street as the one fashionable street of the city, drawing 
theaters, clubs, hotels, and office buildings after it, has at last 
moved the point of highest values from south of the railroad 
tracks to north of them. Residence values are high, owing 
partly to the monopoly of fashion held by Peachtree Street, 
where values vary from $200 to $100. The better streets off 
Peachtree Street, such as West Peachtree, Forest Avenue, Ponce 
de Leon, North Avenue, etc., show values running from $80 to 
$40 ; the wide differences in values for similar land being due 
not only to topography but also to variations in the scale of 




579 



580 



SELECTED READINGS IN ECONOMICS 



development. Where large expenditures are made to improve 
a street by good pavements, sidewalks, parking, boulevarding, 




water, light, gas, etc., and by the erection of handsome houses 
protected by building restrictions, if such developments attract 



THE DISTRir.UTION OF WEALTH 681 

a desirable class of purchasers who establish an attractive social 
neighborhood, the land will easily have double the value of 
adjoining land which lias been allowed to develop itself. 
Owiiisr to hisfh land the Boulevard and Jackson Street district 
is desirable, the low laud between being occupied by negroes. 
In Atlanta, as in all southern cities, the poorer locations are 
taken up by negroes, whose occupancy yields values as high as 
$10 or !i'12 per foot on account of the crowded utilization. The 
old residence district around the state capitol south of the railroad 
tracks has suffered from natural decay and the encroachment 
of business, the highest residence value on the south side being 
given at •i'TO, although owners claim values of ''s'lOO to !5'150. 

New York (population 3,437,202 and about 4,500,000 in the 
metropolitan district) exhibits almost all of the typical develop- 
ments found in the smaller cities. Starting at the southern tip 
of Manhattan Island in 1612, and clustering for protection 
around the fort, the first line of growth was along Pearl Street, 
then the shore road to the Brooklyn Ferry, the attracting forces 
being the trade with Brooklyn and the better facilities for 
ships in the East river, where there was less ice than in the 
North river. Broadway, the beginning of the Boston road 
and the Albany turnpike, was first blocked at Chatham Street 
by the high hill and the Trinity Church ownership of the 
Anneke Jans tract, and turning east sought the narrowest point 
between Collect Pond and Lispenard Swamp, over which to 
throw the bridge which laid down the line of the Bowery. 
Later when Broadway was cut through to Union Square it 
competed with and finally overcame the Bowery. The various 
plats parallel to tlie East river and the North river indicate 
the additions from time to time made to the territory of the 
city. The influence of topography has been gradually overcome, 
ponds, swamps, and streams being filled in and hills leveled. As 
the city grew north, the best residences pushed steadily up Broad- 
way from the Battery, where they started, to Madison Square, 
above which point Fifth Avenue has drawn them off, while busi- 
ness has continued on Broadway. Added to this movement of 
the best residences up Broadway, they have jumped from one to 



582 SELECTED READIKGS IN ECOKOMICS 

another of the small parks throughout the city's area, as from 
St. John's Park to Washington Park, Stuyvesant Square, Union 
Square, Gramercy Park, Madison Square, Bryant Park, and 
finally Central Park. Meanwhile the best retail shops followed 
after the residences on Broadway (also in earlier days the Bow- 
ery), and branched off on such prominent side streets as 14th, 
23d, 34th, and 42d, which drew business, first by their width, 
being laid out for business streets, then by the ferries at either 
end, and last by their many elevated stations. Washington 
Square, which, like Union Square, Madison Square, Bryant Park, 
etc., was formerly a potter's field, when converted into a park 
effectually blocked traffic on lower Fifth avenue and started the 
most fashionable residence street in New York. Fifth Avenue 
appears to have become established as the most fashionable street 
by a process of elimination, owing to the narrowness of the 
island, by which one or two blocks on the water front being 
spoiled for residences by docks and manufacturing, the territory 
east of Third Avenue and west of Sixth Avenue being also 
injured by the elevated roads which make dividing lines, and the 
territory immediately surrounding the Grand Central Depot and 
east of its lines being similarly unavailable, there remain only 
Fifth and Madison avenues with adjacent side streets for high- 
class residences, of which Fifth Avenue leading to Central Park, 
for the past fifty years the most fashionable drive, had the natural 
advantage. The continuous movement of fashionable residences 
on Fifth Avenue up the east side of the Park is quite normal, while 
the absence of residences on the south and west edges of the 
Park was first due to the high prices at which this land was 
held, which led to the erection of apartment houses. The upper 
west-side district has been created by the Riverside Drive 
improvement, but does not compete with the Fifth Avenue dis- 
trict, being injured by the break in the approach, the street-car 
transfers, and the disagreeable section around 59th Street west. 
With fourteen north and south avenues, where there Avould 
have been fifty had New York blocks been equilaterals, and with 
the great disproportion between the latitudinal and longitudinal 
axes of the island, immense traffic has inevitably developed on 




^caU of frrf- 



583 



584 SELECTED EEADINGS IN ECONOMICS 

all of the avenues except Fifth Avenue and part of Madison, 
which lack transportation. This has led to the rapid northward 
movement of shops on all of these axial avenues, so that a con- 
siderable portion of the city consists of north-and-south business 
streets and east-and-west residence streets. 

It appears quite probable that the greater part of the surface 
of Manhattan Island will be ultimately devoted to business solely, 
the space above the ground floor, if not utilized for business, 
being occupied by hotels, apartment houses, flats, and tenements. 
Probably the only exclusively residence occupancy will be in 
the most fashionable locations on and near Fifth Avenue and Cen- 
tral Park, where the very rich who desire to live in town can 
afford to hold their property against the encroachments of busi- 
ness. Even here restrictions running with the land may be 
necessary, the weakness of their position being that one shop 
injures an entire block, while one residence may have but little 
effect on a block of stores. 

Brooklyn, on one side, and Jersey City and Newark on the 
other, have tended to check the northward movement of some 
forms of business, and it is quite to be expected that the general 
growth in all directions from Manhattan Island will create a 
shopping, hotel, and amusement center near the middle of the 
island, necessarily south of Central Park and probably between 
the termini of the new Pennsylvania and Long Island subways 
and the Grand Central station at 42d Street. 

The banking district appears to include the most valuable land 
in the world, the financial section in London being the only com- 
petitor. The two corners of Wall Street and Broad Street were 
sold about thirty years ago at f 350 per square foot, and $450 has 
been offered for the corner of Wall Street and Broadway, by con- 
trast with which The Statist says that X62 (or $300) a square 
foot, including a fairly substantial building, is the highest 
price known in London. It is, however, very difficult to arrive at 
the highest values in the two cities, as the best property changes 
hands only at long intervals. The favorable factors creating high 
prices in the two cities would be for London a larger population, 
lower capitalization rates, arid fair transportation by underground 



NEW YORK 

y| \iid3 O *• W-» '2«*» 3«-« •4*«« tf^« 




586 SELECTED EEADINGS IN ECONOMICS 

railways, and in New York better transportation facilities, 
improved methods of building, freer building laws permitting 
a height of thirty stories by contrast with the London maximum 
of eight stories, the limited area and narrow shape of Manhattan 
Island, promoting greater concentration of population, and a more 
buoyant spirit with greater tendency to discount the future. 

The average price of land in the financial district varies from 
$150 to 1200 per square foot. Next in the scale comes the 
women's shopping district on Sixth Avenue from 14th to 23d 
streets, also on 23d, 34th, and 42d streets, and on Broadway from 
9th to 23d streets, with an average scale of $60 to $100, and 
an occasional sale such as that at Sixth Avenue and 22d Street 
at $180 and the northwest corner of Broadway and 34th Street 
(having an area of less than 2000 square feet) at $350. The 
values on the other business streets might average as follows : 
14th Street, north side, $35, south side, $60 ; 23d Street, north side, 
$65, south side, $120; 34th Street, $60; 42d Street, $70; Fourth 
Avenue, $20; Third Avenue, $9 ; Bowery, $15. The wholesale 
district on Broadway from Canal Street to Ninth Street varies 
from $30 to $60 per square foot, with the side streets from $20 
down to $8. Residence values vary from $60, a fair average for 
Fifth Avenue above 42d Street, up to $75 for the very best loca- 
tions facing the Park. The side streets just off Fifth Avenue 
from 34th to 70th streets vary from $40 to $30, and from 70th 
to 90th streets, from $30 to $20. The side streets from 59th 
to 70th, between Madison and Park avenues drop to $15 or $20 
per square foot ; from Park to Lexington avenues $10 per square 
foot ; from Lexington to Third avenues about $5 per square foot. 
Land in the best residence district on the west side varies from 
$7 to $20 per square foot. 

The persistent tenement occupancy of the lower east side is 
apparently due to the shape of Manhattan Island, the outward 
curve including territory away from transportation lines and 
hence not desired by business houses. Tenement districts wher- 
ever located average from $4 to $10 per square foot. 

An approximate scale of normal values per front foot for cities 
of different sizes might be as follows, it being understood that 



THE DISTRIBUTION OF WEALTH 587 

actual highest values in the various cities vary widely from any 
average scale, owing to the markeddifferences between these cities 
in wealth, character of industries and inhabitants, topography, 
transportation, platting, climate, etc.: 



City Popula- 


Best Blsinkss, per 


Best Kesi 


IDENCE, PER 


tion 


Front 


Foot 


Front Foot 


25,000 


.S300 


$400 


825 


$40 


50,000 


600 


800 


40 


76 


100,000 


1,200 


1,600 


75 


150 


150,000 


1,800 


2,400 


100 


200 


200,000 


2,400 


3,200 


100 


300 


300,000 


3,600 


4,800 


200 


500 


600,000 


7,200 


9,600 


1500 


2000 


2,000,000 


23,000 


31,000 


2000 


3000 


3,500.000 


42,000 


56,000 


6000 


9000 



The above table for business values is based on the considera- 
tion that each thousand of population adds from 'f 12 to $16 to the 
front-foot value of the best locations. Reference to the plats 
will show how this scale applies to the examples given, it being 
noted that the populations stated are for 1900, while these cities 
have grown and values have increased in the past two years, — 
and it being particularly noted that the figures apply to only 
two or three corners in each city, adjacent locations being worth 
possibly only half as much as the best. 

To sum up : the economic rent of business locations represents 
a normal proportion of the profits of the shopkeeper, running 
from 20 per cent to 40 per cent, less operating expenses and 
interest on the capital in the building. The value of business 
land is limited by what the locations can earn, this being con- 
tinually increased by new inventions and improvements, both in 
transportation and in building construction, as well as by increase 
in the population and wealth of cities. 

The economic rent of residence land represents the normal pro- 
portion of income, varying from 15 per cent to 35 per cent, 
which various classes can afford to pay for house rent, less oper- 
ating expenses afid interest on the capital in the building. The 
increase in residence values comes from larger individual fortunes 
and more of them. 

The broad movements of value are that value by proxim- 
ity, responding to central growth, diminishes in proportion to 



588 SELECTED READINGS IN ECONOMICS 

distance from the various centers, while value from accessibility, 
responding to axial growth, varies in proportion to transporta- 
tion facilities which frequently carry high values to considerable 
distances from the main center through areas of low value. The 
principal causes of redistribution of values are changes in trans- 
portation facilities, such as new service, elevated or underground 
lines, new railroads, bridges, tunnels, ferries, and the more grad- 
ual readjusting force of the reaction of new utilities and new 
occupied areas, which brings harmony out of the complex con- 
tending factors. Present tendencies are entirely towards greatly 
increased values at strategic points, although the general run of 
values for the great mass of medium business and residence 
property changes slowly, since such property supplies the wants 
of a large number of people of moderate earning power who 
cannot pay beyond a certain price. Moreover there is but little 
speculation in such property, a more sober view being taken of 
its possibilities and it being realized that the repair and depre- 
ciation account is increasingly large as property sinks in grade. 
Ordinarily a gradual lifting of values for all classes of property 
occurs in proportion to the growth of the city with the excep- 
tion of the decaying sections left behind in the onward march, 
where values fall steadily, sometimes to the point of extinction. 
The point of highest value, responding in scale and location to 
the growth of the city, moves onward from the first business 
center, the crest of the wave being usually about the middle of 
the shopping districts, frequently strengthened by exceptionally 
large and handsome buildings, and its movements checked by 
strong cross streets. Apart from any factors which might de- 
flect the line of growth, the land lying in its path is quite cer- 
tain to increase in value, the time of such increase, however, 
being difficult to gauge, while the land which it has left behind 
is quite certain to sink more or less rapidly in value. In the 
largest cities, apart from the onward movement of residences, 
retail and wholesale shops, a financial section with even higher 
values arises in the territory left behind, where the banks, trust 
companies, brokers, and office buildings cluster close to the orig- 
inal center. 



chaptp:r XIX 

SOME ASPECTS OF THE LABOR PROBLEM 
1. The Policies of Labor Organizations^ 

The union has two general methods of improving the eco- 
nomic condition of its members. It may try to strengthen the 
strategic position of the individual workman in dealing with 
the employer, or it may take the function of bargaining alto- 
gether out of the hands of the individual. The former policy 
involves an attempt to diminish the number of competitors in 
the trade. The latter has no necessary reference to the number 
of individual workers, but involves the placing of the interests 
of all the workers under a single control, so that the whole 
amount of labor power available in the trade may be handled 
in the market as a unit. 

The restriction of the number of competitors is undertaken 
chiefly through measures for diminishing the number of learn- 
ers. It is to this end, at least in a great degree, that all the 
union regulations of apprenticeship, which are discussed below, 
are directed. For the same purpose, in trades which feel the 
competition of foreigners and in which at the same time the 
strength of the union is such as to promise effective control, 
restrictions are placed, by high union initiation fees or otherwise, 
upon the entrance of foreigners into the occupation. 

Such regulations as these, however, play a relatively small 
part in the policy of the unions. That upon which they chiefly 
rely is unity of action. If the whole bod}- of workers of a given 
kind can be brought into the union, so that the union can meet 
the employers as the representative of the whole, the position 
of the worker will be greatly strengthened. There will still 
remain the absolute perishability of his commodity, — the need 

^ Reprinted from the Report of the Industrial Commission, XLX, 80C-827. 

589 



590 SELECTED READINGS IN ECONOMICS 

of selling his labor to-day under penalty of the total loss of 
to-day's portion. But he will be freed by the support of his 
fellows and of the union funds from the necessity of accepting 
whatever is offered, on pain of beggary. The fear that if he 
refuses to accept certain terms his neighbor will accept them 
will also be removed. His ignorance of market conditions will 
be partly remedied, both through the combination of the knowl- 
edge of all the members of the union, and, in some cases, by 
the broader outlook which the union officials, wholly or partly 
exempted from daily application to manual work, may be able 
to obtain. The whole matter of bargaining can be put into the 
hands of the most skillful; and the officers and leaders may 
develop a skill in bargaining, by constant practice, comparable 
to that of their opponents. 

Unified action involves definite rules as to wages, hours, and 
other conditions of work. This alleged " tyranny," or interfer- 
ence with the " freedom " of the members, has often been con- 
sidered one of the most objectionable features of the unions. 
There are, it is said, " honest men with wives and families to 
support who are willing to work for one and two dollars a day, 
but they can't get it. Why? Because their union or their 
trust won't allow them. The standard is set for them, and if 
they don't wait and starve their families until they can reach 
that standard they can't get work anywhere. Everywhere they 
go they are met by the same condition of affairs, all over our 
United States. A workingman can't work for what he wants 
to, — he must work for what somebody else says he must 
work for." 

To the mind of the union man the fixing of minimum wages 
by the union does not seem to involve any diminution of his 
liberty. The union brings him a sense of greater liberty. When 
he dealt as an individual with his employer he had to accept 
regulations and rates of pay which he had little or no voice in 
determining. He was under an industrial authority which left 
him no freedom except the freedom to leave its jurisdiction. 
The union is a democratic government in which he has an equal 
voice with every other member. By its collective strength it is 



SOME ASPECTS OF THE LABOR PROBLEM 591 

able to exert some direct influence upon the conditions of em- 
ployment. As a part of it, the individual workman feels that 
he has a voice in fixing the terms on which he works. He 
exchanges the sense of subjection to the employer for a certain 
sense of free action. This increase of freedom is, in fact, a 
result of organization which appeals most strongly to the minds 
of many workingmen, and which some of them mention among 
the things they prize the most. 

The fixing of the terms of employment of considerable num- 
bers of men by definite and general rules is not peculiar to labor 
organizations. It is a necessity of industry upon a large scale. 
The small employer may be able to make separate bargains with 
individual men ; but the large employer must, of necessity, 
classify his hands and fix their pay by rule. The mere setting 
up of such fixed rules is not, therefore, the essence of the com- 
plaint against the labor unions. 

When wages are fixed by the piece the necessity of uniform 
rates is evident. A uniform price per piece will give a variable 
rate per day, depending on the efficiency of the workers. It is 
in regard to time wages that fault is found with the principle 
of the union rate. The unions try, say their opponents, to re- 
duce all men to a common level ; and a common level is of 
necessity the level of the slowest and the dullest. 

It is not uniformity of daily or weekly pay which unions 
really desire. The uniformity which they seek is equal pay for 
equal work. It is true that there is a widespread objection to 
the piecework system. Even unions whose members work under 
it do not always approve of it. But this is because it is felt to 
interfere with the real final purpose of the organization, — the 
maintenance and the increase of the rate of i)ay per unit of out- 
put. Uniformity of pay per unit, desirable as it is in itself, is 
chiefly important as a means of securing higher rates of pay. 
If, under the circumstances of a given trade, the rate per unit 
of output seems more effectively protected by the time system 
than by the piece-price system, the time system will be pre- 
ferred ; and the uniformity of the rate i)er unit must be pro- 
tected under it by such means as are available. 



592 SELECTED KEADINGS IN ECONOMICS 

As a matter of fact no union forbids variations of time wages. 
The universal policy, where time wages are involved, is to fix a 
minimum. In most unions the fixed minimum is in practice 
the actual wage received by the large majority of the members ; 
but the union leaders generally profess entire willingness that 
the employers pay more. Objection is sometimes made to spe- 
cial payment for mere speed, on the ground that such arrange- 
ments are intended to establish an abnormally fast pace, which 
may be made a standard for the whole. But for special skill, as 
shown in the quality of work, or in the ability to do particularly 
difficult jobs, extra payment is made not infrequently, and with 
the full approval of the union authorities. 

It might seem to be possible for the union itself to fix grades 
of ability, with corresponding differences of wages, to which it 
might assign its several members ; but the universal voice of 
the union world declares this to be impracticable. Such grading 
could not be effected without jealousies and heartburnings. In 
a purely voluntary and democratic organization, whose strength 
depends upon the loyalty of its members, it would not be safe 
to introduce a policy so heavy with causes of discord. On the 
other hand, to permit members to be assigned to different grades 
by the employers would be to revert to the individual bargain ; 
and the tendency would be to reduce the greater part of the 
members to the lowest grade. 

In a few exceptional cases the rigid enforcement of the mini- 
mum wage is waived. This is done oftenest for members whose 
hands have lost their cunning by reason of advancing years. 
Some unions give special consideration to the cases of such 
men, when they request it, and authorize them to accept special 
wage rates lower than the regular minimum. This is very rarely 
done, however, for any other reason than age. Men in their 
full strength must take their chances of finding employment 
at the rates that others get. 

Time wage rates have been greatly increased by union action, 
but the increase of the rate per unit of product has been by no 
means so great. In two ways a comparatively stable relation is 
maintained between output and pay. 



SOME ASPECTS OF THE LABOR PROBLEM 593 

In the first place, as wages go up employers find that it does 
not pay them to keep any but the most efficient men. The 
weaker, the slower, the less skillful find their employment more 
and more precarious. They hang ' upon the outskirts of the 
trade, occupied when business is active, idle when it is dull. 
In the end they leave the occupation altogether, or leave the 
union and work at non-union jobs, or drift away to places where 
wages are smaller and the pace is slower. 

In the second place, the pick of the men left by this process 
of selection increase their pace. They are led to do it partly by 
a sense of satisfied ambition in the wages they are getting, and 
partly by the fear that they may find themselves among the 
rejected. In such unions as those of the bricklayers of New 
York City, which have obtained a considerable increase of pay 
within ten or fifteen years, the men declare that the pace has been 
greatly quickened. 

App renticeship 

The entrance to a trade must necessarily be through a period 
of instruction and practice. In the old days the learner was 
legally bound to a master, by whose side he worked, from whom 
he received personal instruction in the craft, and in whose house 
he usually lodged and ate. 

The growth of the great industry has done away with ap- 
prenticeship of the old type. There are no longer masters who 
can care for apprentices and give them personal instruction. 
The custom of legal indenturing has almost disappeared. It is 
a custom which the labor organizations, so far as their attitude 
can be judged from their formal expressions, look back to with 
unanimous longing. A surprising number of the unions even 
to this day have in their written constitutions expressions of 
desire that suitable laws for the indenturing of apprentices be 
enacted, and that the custom of indenturing be renewed and 
enforced. 

The unions complain tliat under existing conditions it too 
often happens that trades are not taught or learned at all. A 
boy is set to feeding a machine, and feeds it day by day and 



594 SELECTED EEADINGS IN ECONOMICS 

month after month. He is gradually advanced from simpler to 
more complicated operations. He remains, however, a tender 
of machines, and never becomes an artisan. The evil of this 
condition, from the standpoint of the union, is plain enough. 
The workman of former days spent years in acquiring a general 
and thorough knowledge of a craft. He is in danger of being 
replaced by a set of workmen, none of whom has passed through 
his training or has acquired such a skill as his, each of whom is 
only capable of tending a machine which has usurped a part of 
his work, but all of whom together threaten to make his skill 
industiially unnecessary and to deprive his training of its value. 
Machinery and the division of labor substitute low-grade for 
high-grade workmen. Though wages for the same grade of skill 
may be maintained, or may even rise, wages to the workmen actu- 
ally engaged upon a given product tend, it is declared, to fall. 

The unions, representing the interests of the workmen already 
engaged in the trades, could not fail, therefore, to desire the 
maintenance of a system of apprenticeship. Though apprentice- 
ship enforced by law is beyond their reach, many of the stronger 
unions are able to maintain something like it, by their own power, 
within the spheres of industry which they control. Wherever 
it is possible the unions require that entrance to their crafts be 
through an apprenticeship of three, or four, or five years. They 
require also that the learner be not kept upon a single spe- 
cialty, but that he be given a broad and thorough knowledge 
of the trade. 

It is probable that the immediate interest of the unions leads 
them in this respect to combat in some degree the natural evo- 
lution of industry. It may be that they put greater restrictions 
upon the division of labor than the industrial interest of society 
requires. Though foremen and superintendents ought to have 
the most thorough and complete trade training which they can 
obtain, there seems to be a limit to the extent of knowledge 
which an ordinary workman can make direct economic use of. 
There is little demand for men who are capable of making a 
complete shoe. It is high skill and dexterity in some one mi- 
nute part of shoemaking which is called for by modern conditions. 



SOME ASPECTS OF THE LAliOK PItODLEM ry.)5 

Something may, however, be said from the liigher social stand- 
point in favor of the broader training which the unions try to 
insist on. It must be admitted that the man who has spent four 
years in acquiring a general knowledge of the machinist's trade 
in all its branches is likely to be a broader man and a better 
citizen of the republic than he who has simply pushed pieces of 
iron between the jaws of a machine. It is not altogether cer- 
tain that the greatest possible exploitation of low-skilled labor 
gives the greatest possible production of material wealth. It 
is in a high degree doubtful whether such methods of pro- 
duction, pushed to the extreme, result in the highest social 
well-being. 

There is another kind of apprenticeship rule which is sub- 
jected to more frequent and severer criticism. This is the 
restriction of the number of apprentices. It is a very common 
policy among unions wliich have strength enough to enforce it 
to forbid employers to take on more apprentices than a certain 
limited number, generally fixed in some definite proportion to 
the number of journeymen employed. The purpose of this pol- 
icy is unquestionably to diminish the competition for employ- 
ment, and so to make the emploj'ment of the present members 
more continuous and to keep their wages higher. But the par- 
tial exclusion of American youth from the skilled trades is felt 
l)y outsiders to be not only unjust to the individuals whose 
choice of an occupation is restricted, but in broader ways inju- 
rious to society. There necessarily results, it is argued, an in- 
creased overcrowding of the less skilled occupations, and of 
those in which no such artificial restrictions exist. The restric- 
tion of apprenticeship cannot be introduced except in trades 
in which the workmen have already obtained, through their 
skill and their organizations, a considerable strategic advan- 
tage, and presumably a relatively high rate of wages. A forcible 
exclusion of new recruits from such trades results in a forcible 
injection of an abnormal number of recruits into other occu- 
pations. These other occupations are presumably, upon the 
average, already more crowded, and subject to lower wage rates 
and to worse conditions. The artificial and abnormal increase 



596 SELECTED EEADINGS IN ECONOMICS 

of recruits to them tends still further to lower their wages and 
their conditions of employment. 

The arguments with which the unions support the restrictive 
policy are based in part upon the same considerations of the 
desirability of thorough instruction in a trade which have 
already been referred to. It is declared that, if the hiring of 
boys is absolutely free, the less scrupulous employers get boys 
to do a large part of their work. Such employment does not 
amount to an apprenticeship. It is not meant, even in a sub- 
ordinate degree, to teach a trade. The purpose of it is to get 
work done at the lowest possible rate. A boy is kept as long as 
he will consent to work cheaply. When he begins to set a value 
upon himself he is discharged and a new cheap boy is hired. 
Meantime the first has been taught no trade. He has simply 
learned a few simple movements. He began his work as an un- 
skilled laborer, and he is still an unskilled laborer when he ends 
it. Such practice as he has obtained will be of trifling value to 
him, except in the improbable case of his getting new employ- 
ment almost exactly similar. The restriction of the number of 
apprentices is a part of the same consistent policy, says the 
unionist, as the requirement of an apprenticeship of a fixed 
length. It is essential to the acquirement by the youth of an 
adequate knowledge of the trade in which he is engaged. 

The hiring of an excessive number of boys, it is maintained, 
results in inferior work, and so in injury to the public. But, 
worse than that, it gives us idle men as well as busy children. 
The natural breadwinners walk the streets, while boys who 
should be in school take their places at the bench and the 
machine. The employers who are willing to follow such a policy 
are able, by means of their unfairly cheap labor, to underbid 
their competitors, and force them out of business, or compel 
them to adopt the same injurious tactics. 

Common as it is to make rules limiting the number of appren- 
tices, there is some question how much effect such rules produce 
on actual conditions. The new recruits to most trades seem to 
come chiefly, it is true, from places where the trades are not organ- 
ized, or where their organizations are weak. The union printing 



SOME ASPECTS OF THE LABOR PROBLEM 597 

offices of the great cities draw their recruits from the country 
offices. The ranks of tlie city carpenters are filled to a very great 
extent with men of country training. But one may recognize 
this fact and may still doubt whether the limitation of the num- 
ber of apprentices restricts, in a marked degree, the entrance to 
most trades of young persons who desire to follow them. 

In the first place, this phenomenon is not confined to organized 
trades. The most of the bank clerks of New York City, as well 
as of the printers and the carpenters, are men of country train- 
ing. In the second place, the restrictions of the unions are some- 
times ineffective, because unnecessary. At least one witness, an 
employer, stated before the Industrial Commission tliat the unions 
in his trade and in his town, though they strenuously insisted 
upon a formal limitation of the number of apprentices, fixed so 
high a limit that the masters had not cared to take as many 
apprentices as the union rules allowed. 

The disappearance of apprentices seems to be caused, in a large 
proportion of cases, by the indisposition of the masters themselves 
to take apprentices, which is illustrated by the statement just 
referred to. That indisposition may itself be due in part to 
union regulations, but to regulations other than the restriction 
of numbers. The greatest influence is perhaps exerted by the 
insistence of the unions upon the comprehensive teaching of a 
trade. Industry on a great scale is based upon division of labor, 
and division of labor means specialization. As is noted above, 
the natural tendency of the employer is to keep his boy employees 
within narrow lines of work, in order that they may quickly 
attain such skill as will bring him a profit. The union jirohibits 
this. It insists upon thorough and broad instruction in the craft. 
It is this, in a great degree, which makes it not worth while to 
employ apprentices. 

While insistence upon the teaching of the whole trade 
diminishes the value of apprentices, the union also raises the 
cost of them. It fixes a scale of wages for them as well as for 
other employees. The scale is, of course, far lower than that for 
journeymen ; yet it may sometimes prevent employers from tak- 
ing apprentices, when they would take them, notwithstanding 



598 SELECTED READINGS IN ECONOMICS 

the necessity" of giving them general instruction in the trade, if 
they could pay them less. 

As is noted elsewhere, the increasing difficulty of giving 
thorough industrial training in the shops has led to an increasing 
demand for industrial schools. Such schools in many cases offer 
only a general training, without pretending actually to teach 
trades. The school teaching of trades seems to be against the 
direct interest of the actual members of the unions in two ways. 
It will increase the number of workmen in their crafts, and so 
will increase the competition for employment, and will tend to 
make wages lower and employment less constant. Besides this, 
the school-trained boys will be removed, during the formative 
period, from the union atmosphere. They are likely to acquire 
a set of opinions and feelings different from those of the shop, 
and to be less readily brought to the union point of view. The 
unionist may naturally fear that the technical schools will pro- 
duce a crop of non-union workmen, and will make united action 
for the betterment of the condition of the workers less practicable. 
Yet the organized workmen, at least in some instances, seem to 
appreciate the social value of training of this kind, and to be 
ready to do what they can to promote it. The agreements be- 
tween the masons of Boston and their employers provide that 
both parties shall join in an effort to establish an institution in 
Boston, in which all the trades shall be systematically taught, 
and that when such a school is established they will unite in 
the oversight and care of it, and will provide in their rules for 
a reasonable deduction from the term of an apprentice, for 
instruction received there. 

Attitude of Labor Organisations toward Non-union Men 

The strength of a trade union depends on its comprehensive- 
ness. From the nature of the case it must desire to embrace all 
the workmen of its craft. Such universality is not in itself a 
thing which any one has a right to object to. The courts have, 
however, frequently questioned the propriety of the methods by 
which unions sometimes try to promote their comprehensiveness. 



SOME ASPECTS OF THE LAr.OR PROBLEM 599 

The method which is chiefly condemned is the exclusion of 
non-union men from employment. This may be effected by estab- 
lished custom or by formal agreement with employers ; but the 
ultimate foundation on which the enforcement of it rests is 
always the refusal of the members of the unions to work with 
non-union men of their trades. Sometimes, to help other unions, 
the refusal is extended to non-union men of other trades, and 
occasionally to work upon material prepared by non-union men. 

Many motives may lead a man to keep out of the union. He 
may have conscientious scruples against the organization as 
such, or against some of its methods. He may be of an independ- 
ent temper, and his spirit may rebel at the notion of permitting 
his economic conduct to be determined by the will of a majority. 
He may wholly fail to assent to that notion of trade and class 
solidarity which lies at the bottom of all effective labor organiza- 
tion. He nui}' have had personal quarrels with some of the mem- 
bers. He may simply think it not worth his while to pay the 
dues. A free American citizen is entitled to shape his course by 
any of these considerations. To force him, having such opinions 
and desires, to act contrary to them, seems at first thought a 
violation of the fundamental principles of natural liberty. 

A strike because of the emplo3-ment of non-union men is felt 
by many to be an attack, not only on the right of the employer 
to manage his own affairs, but also on the right of the non-union 
men to earn a living for themselves and their families in such a 
way and on such terms as are satisfactory to them. It seems to 
be a violation of the principle of equal rights for all men. The 
members of the unions, it is said, arrogate exclusive privileges 
to themselves and deny equal rights to others. A labor union 
is a trust, whose aggressive conduct leaves its members no excuse 
for complaint of any trust or association of capitalists. 

The practice of attempting to procure the discharge or pre- 
vent the employment of non-union men has been brought before 
the American courts in numerous cases in recent years. In most 
instances the court decisions have held that such action, especially 
where it seeks to bring about the discharge of those already in 
employment, is unlawful, either civilly or criminally. It has 



600 SELECTED READINGS IN ECONOMICS 

even been held by the court of appeals of New York that it is an 
unlawful conspiracy to procure the discharge of employees in 
pursuance of a written agreement between the employer and the 
union that only union men shall be employed.^ The courts usu- 
ally take the position that such action on the part of the unions 
is an interference with the liberty both of the employer and of 
the workingman. It is argued that every employer has the right 
to hire whom he will, and that workingmen have the right to 
enter any lawful employment. To compel a man to join a labor 
organization against his will is also considered to be illegitimate 
coercion. 

The highest English judicial authority, the House of Lords, 
has recently held, in the famous case of Allen v. Flood, that 
workingmen have the right to refuse to labor with others to 
whom they object, or, indeed, to refuse to labor on any ground 
which seems to them proper. The question whether such action 
toward obnoxious employees was ethically justifiable, or whether 
it was desirable from the standpoint of the general public welfare, 
was not discussed ; but the court held that the motive of the 
workino^men in their action was not to be considered in deter- 
mining its legality. Several American courts have very recently 
followed this English decision.^ The legal right of workingmen 
to refuse to labor with others, as well as the ethical and economic 
justification of such action, is still an open question, as to which 
marked differences of opinion exist. 

The attempt of labor organizations to make their membership 
as comprehensive as possible is materially different in character 
from the attempt, less frequently made, to exclude persons alto- 
gether from the trade. If the union is willing to receive any 
competent person into its ranks, no man can complain of being 
absolutely deprived of work because union men refuse to work 
with him so long as he fails to join the organization. When, 

1 Curran v. Galen, 46 N. E. Rep., 297, 298. 

2 Reform Labor Club v. Connaughton, Bulletin of New York Bureau of Labor 
Statistics, June, 1900, p. 159 ; National Protective Association v. Gumming, 53 
App. Div., 227, 231, 232. 



SOME ASPECTS OF THE LABOR PROBLEM GOl 

however, a unitm has established a substantial control of its 
special kind of labor, the temptation arises to restrict the num- 
ber of members. This is occasionally done by an absolute refusal 
to receive new candidates.^ Such action is, however, rare ; the 
forms in which this tendency more commonly appears are restric- 
tion on apprenticeship and high initiation fees. 

Limitation of Output 

The workman sells his labor for certain days or certain hours. 
The natural desire of the buyer is to get the greatest possible 
economic effect. The seller desires to give the least possible 
exertion. 

That the tendency of workingmen is to restrict the output of 
their labor within more or less definite limits, which they have 
come to consider right and just, is undeniable. It has often been 
asserted that the effective force of this tendency varies with the 
efificiency of labor organization. The trade unions of Great 
Britain, for instance, have always been relatively strongei' than 
those of America, and at the same time the tendency to fix defi- 
nite limitations to the performance of each workman has been 
stronger there. One standard contrast between industrial con- 
ditions in Great Britain and in the United States is the greater 
freedom of the American workman from restrictive rules. To it 
is often attributed, in a large degree, his greater activity and 
effectiveness. The alleged decline of British industry is often 
laid at the door of the unions, by reason of their limitation of 
the product of their members. 

It is true that the limitation of output is not effected by means 
of definite rules except where labor organizations exist. It is 
only through some sort of organization that such rules could be 
established ; but such rules, when unions frame them, only put 
into definite form desires and tendencies which have previously 
existed. They may be only the expression of old traditions of 

1 For instance, the stonecutters' union of Newark, New Jersey, resolved in 
May, 1889, to admit no more members for one year. Reports of the Industrial 
Commission, XVII, 571. For exclusion of particular men, see VII, 702. 



602 SELECTED READINGS IN ECONOMICS 

the trade. The non-union machinist is almost as strenuous as the 
unionist against the running of two machines by one man. 

The ground on which workingmen oftenest defend the restric- 
tion of output is the need of protecting themselves from exces- 
sive and injurious exertion. The stress and strain of work at 
high tension is declared in some trades to have reached a point 
which noticeably shortens the working life of the men. This is 
the complaint of the flint-glass bottle blowers, who formerly had 
a strict limitation of output, but gave it up some years ago. 
They are piece workers, and the spur is the desire of each man 
to get the highest possible daily wage. The skilled workmen in 
the steel mills are also piece workers. In the rolling of black 
plate for tinning the daily output of 30-gauge per man in 1893 
and 1894 is said to have been about 3600 to 3900 pounds. The 
union has a limit for the day's work ; but it was raised succes- 
sively to 5250 and to 5750 pounds, and the president of the 
union testified in 1899 that he was satisfied that some men were 
making, " illegitimately," as much as 7500 pounds in the eight- 
hour day. . . . 

Under a time-wage system the spur to overexertion comes 
directly from the masters. Aside from direct and brutal driving, 
which is sometimes charged, the workmen point out various 
devices by which, as they allege, employers try to get increased 
amounts of work : the hiring of especially capable men by extra 
payment to set a pace which others can be directly compelled to 
follow, if anything like team work is involved, or which can be 
held up as an- example that they must copy ; in some sorts of 
machine work, the speeding up of the machinery ; in others, in- 
crease in the size of the machines ; in others again, the setting 
of one worker to tend two or more machines. 

On. the employers' side it is denied that the increase of the 
size of machines, or of their speed, or the placing of two or more 
under the charge of one person, necessarily involves an increase 
of exertion. It is pointed out that these changes are the direct 
result of the more perfect and more automatic working of the 
machines, and of the less attention which they consequently re- 
quire. It is the unanimous assertion of the workmen, however, 



SOME ASPECTS OF THE LAI'.OK Pllor.LE.M GU3 

that these changes taken together do involve an increase of 
strain. Tlie physical exertion may be no greater, or may even 
be less ; but, it is declared, the strain upon the attention is such 
as to involve increased exhaustion at the end of the day, and a 
shortening of a man's working life. 

It should be remembered tliat a man's industrial life may be 
shortened, not only by hastening his absolute deterioration, but 
also by raising the standard of eflieiency. As the pace increases 
the number of men that can maintain it diminishes. Men a little 
past the prime of life, who would be able for years yet to do 
effective work, iind themselves forced out of the industrial field 
because they are no longer capable of the intense application and 
the rapidity of movement which existing standards require. 

The workingmen not infrequently allege as an additional 
argument against too great rapidity that it is incompatible with 
excellence of work. A personal motive which unquestionably 
plays its part at times, though it may not often be" avowed, is 
the desire to " nurse a job," — to make one's employment last. 

It may be that broader economic ideas have the greatest real 
influence in determining the limitation of work. These ideas 
have as their center the desire to maintain and to increase wages. 
There are several ways in which the limitation is thought by 
some workmen to contribute to this result. 

In the first place, restriction is conceived to be necessary to 
prevent a direct lowering of the standard rate of pay. The 
standard rate, whatever terms may be used in stating it, means 
at bottom so much pay for so much output. To permit individ- 
uals to give for any certain payment a larger product than the 
standard current in the trade is to revert at once to tlie individ- 
ual bargain. It makes no difference whether the individual com- 
petition is introduced through cutting the price of a day's work 
or through increasing the amount of it. The one process as 
well as the other destroys the effectiveness of the union rate, and 
will end by compelling each worker to deal with the employer 
as best he may in his individual weakness. 

If a few individuals increase their speed, their pace tends, it is 
declared, to become the standard pace in the trade. If the work is 



604 SELECTED READINGS IN ECONOMICS 

by the day, there is no tendency to a correspondmg increase of 
wages. The workmen assert that the case is nearly the same, 
in the long run, if the work is by the piece. Under piece rates 
there is, of course, an increase of daily wages at first, if the 
pace is increased. But every employer has in his mind a more 
or less definite standard of just wages for each kind of service. 
If the piece workers begin to earn more than he considers fair, 
he will cut down the piece prices. In the end the men will 
work harder than before, and will get no more for it. Here, 
therefore, as. well as under the day- wage system, the standard 
rate is best maintained, the workmen think, by keeping within 
certain standard limits of performance. 

In a less direct way the limitation of output is conceived to 
affect wages by providing work for the unemployed. The com- 
petition of the unemployed is the great obstacle in the way of 
raising wages. If work can be found for them, jobs may be 
made to hunt men instead of men hunting jobs. If those who 
are employed work excessively, it is claimed, they selfishly take 
to themselves work which ought to be left for the less fortunate. 
To state the case in the converse form, if the output of those 
who are employed is restricted, room may be made for all who 
want employment. This is a proposal of kindness and charity ; 
but it is also a proposal of good policy for those who are already 
at work. If the masters knew that there were no idle hands to 
take the place of those they have, they would be anxious to 
keep their men, and the men rather than the employers would 
be the dictators of wages. The aggregate share of the product 
which goes to the wage workers would be increased at the 
expense of the share which goes to other classes. 

Another economic argument is based upon the idea of over- 
production. It is because more goods are made than can be 
bought by people who want to buy them, it is argued, that the 
mills have to stop working, and widespread industrial depression 
occurs. So far as restriction of individual output would increase 
the aggregate share of the wage-earners in the social product, it 
would modify the tendency to industrial depression by increas- 
ing consumption ; for almost all which the wage-earners are able 



SOiME ASPECTS OF THK I.Ar.Oll PROBLEM G05 

to get is immediately consumed. lUit beyond tliat over^noduc- 
tion would be directly diminished by so much as each individual 
worker should diminish his own product. 

There is yet another forin of economic argument, which seems 
to be especially prominent in Great Britain, and which doubt- 
less affects in a less degree the policy of some American unions. 
In it labor is conceived as a commodity offered in the market 
like other commodities. Whatever increases the supply tends 
to lower the price. But if four men do each a fourth more 
work than has been customary in the occupation, the effect is 
exactly the same, it is argued, as if the labor of a new man 
were thrown upon the market. The market value of each unit 
of labor will be lowered. Employment will be harder to get 
and less regular. 

So far as restriction of product is designed to avoid excessive 
strain and to preserve the health and strength of the workers, 
the object is legitimate, and the method might be sanctioned if 
there were no better ; but the same end may be attained in 
another way, which is more advantageous to the worker himself 
and which offers less ground for condemnation. Deliberate 
slackening of activity seems directly contrary to the principles 
of industry, and it alienates the sympathy of every one outside 
the wage-earning class. Diminution of working hours brings 
as great physical relief to the worker, and it offers social advan- 
tages which men of every class can appreciate. The enjoyment 
of home, the opportunity for intellectual cultivation, the possi- 
bility of stimulating new and higher desires, — these things are 
visible to all and%approved by all. 

Efforts on the part of employers to restrict output in order 
to enhance prices are by no means uncommon, although, like 
similar efforts on the part of workingnien, they are usually dis- 
approved by economists and by the general public. There can 
be little doubt that in the long run the interests of all classes 
will best be pi'omoted by making the aggregate production of 
wealth as gi-eat as possible, so long as the workmen are not 
crowded beyond their strength. Certainly any general attempt 
to reduce the efliciency of Americ^an labor will check the progress 



606 SELECTED READINGS IN ECONOMICS 

of our industries, and will hamper us in competition with the 
other great producing nations. The high productivity of our 
industries at the present time is in part due to the superior 
methods and machinery used, but also in no small degree to 
the greater energy and skill of the American laborer. That 
high degree of energy and skill is the cause, at least in part, of 
the higher wages which American workingmen usually receive. 

Attitude of Labor Organizations toward Labor-saving 
Improvements. 

Ever since the era of machine industry began, many, perhaps 
most, workmen, organized and unorganized alike, have looked 
at every labor-saving improvement with dislike. In the early 
days workingmen frequently broke the machines and drove 
away the inventors and the users. Later, labor organizations in 
many instances devised rules to shut out machinery when they 
could, or to diminish its efficiency when they could not shut 
it out. The experience of a hundred years has shown that 
machinery cannot be kept out, and that its introduction can 
be little, if at all, retarded by such efforts of workingmen. 
Actual attempts to keep it out have therefore almost ceased, 
and rules tending to limit the efficiency of improved machinery 
are rarely found. Such rules regarding the limitation of output 
as do exist originate mostly in some other purpose than that of 
hampering the course of invention. Nevertheless the old feeling 
against improved machinery still exists among a large proportion 
of the working class, and manifests itself whenever there is a 
chance for it. The phenomenon is not characteristic of trade 
unions, but rather of the entire working class. 

That improvements in machinery and means of production 
have been ultimately advantageous to workingmen, as well as 
to all other classes of society, is a proposition which scarcely 
requires argument. The immensely rapid improvement in the 
means of production during the past century meant an immense 
increase in the available product for distribution. Whatever may 
be thought as to the equality of the division of this increased 



SOME ASPECTS OF THE LABOK PROBLEM GOT 

product between different classes of society, there is no doubt 
that the absolute income of the working class has been greatly 
increased through inventions and improved methods. The most 
intelligent working people usually recognize this fact. They 
realize that improved methods tend to reduce the cost of prod- 
ucts, and to make them more accessible to workingmen as well as 
to other consumers. It is also recognized, further, that in many 
instances the reduction in the price of the product leads to such 
an increase of demand for it as ultimately to permit the employ- 
ment of as many persons in the trade as were required before. 

Even when there is a recognition among workingmen of the 
ultimate advantages of labor-saving machinery, their hostile 
attitude toward the machine is not always abandoned. The key 
to this puzzle lies in the difference between the "• long run " and 
the " short run." The ultimate effects of an industrial change 
upon a trade as a whole are one thing; the effects upon the 
individuals who are working at the trade when the change 
comes are quite another. The linotype may so cheapen printing 
as ultimately to increase, or at least not to diminish, the number 
of printers employed ; but if a fourth of the compositors are 
thrown out of work when the linotype is introduced, they must 
find means to live while the ultimate result is working itself out. 

In two ways the machine may throw the workman out. It 
may so far " save " or replace the labor of men that less persons 
will be employed in the industry ; or it may save skill, and 
enable cheaper and less skilled hands to displace the more 
skillful and expensive. In cotton spinning the ring frame, 
worked by women, is crowding out the mule with its high- 
skilled male spinners; and in the machine-building trade itself, 
many operations which formerly required trained mechanics can 
now be perfoimed by automatic machines with the help of 
laborers of relatively slight and narrow skill. Similar results 
have been referred to in testimony before the Industrial Com- 
mission in wagon manufacture, glass blowing, stonecutting, 
and iron founding. 

Even if the high-grade workman retains his employment, he 
is likely to find himself subjected to a loss. His skill, at the 



608 SELECTED READINGS IN ECONOMICS 

best, is deprived of some of its value, perhaps a large part, by 
the introduction of the machine. The hand compositor has a 
fund of knowledge which will help him if he gets a place at the 
linotype, but the dexterity of his fingers loses its market value. 
The hand shoemaker, when his trade began to be supplanted by 
factory work, had a certain superiority over persons unconnected 
with the trade if he went into the factory ; but he would not 
have in the factory anything like the advantage which years of 
apprenticeship and practice had given him in his handicraft. 

These considerations, which have often received too little 
recognition from persons outside the wage-earning class, have 
always been instinctively recognized, if they have not been 
clearly formulated, by the wage-earners themselves. The interest 
of the man who sees a machine invading his craft and threaten- 
ing to rob him of the opportunity to sell his skill is little affected 
by the results which the introduction of the machine may exert 
twenty years hence upon society, upon his trade, or even upon 
his children. He is concerned with getting bread and shelter 
to-day and to-morrow. 

Leaving aside the cases in which the introduction of new 
machinery or methods results in an absolute lowering of the 
condition of the workers in an industry, it is the instinctive and 
universal feeling of employers, until they have been educated 
by a long course of controversy, that the workmen ought to be 
satisfied if they receive the same daily or weekly wage as before. 
The whole benefit of the increased production, it is assumed, 
ought to go to the employers, until competition compels the 
sharing of it among consumers by means of lower prices. The 
employers are not even ready to take account of any increased 
strain or increased intensity of work which the machine may 
call for. The workmen, on the other hand, are likely to assume 
with equal confidence that the machinery ought not to cause 
any reduction of the total cost of each unit of product ; that is, 
they assume that the wages paid for the production of each unit 
ought to be the same as before, less only such an allowance 
as will compensate the employer for the maintenance of the 
machinery and for the interest on its cost. 



SOME ASPECTS OF THE LABOR PROBLEM G09 

Neither of these assumptions seems capable of being reasonably 
maintained. A considerable share of the gain ought to go in the 
first instance to the employer. If he got none, he would have 
no incentive to introduce the improvements ; and so far as com- 
petition is really free, the share which he gets will presently 
cease to remain in his hands, and will thereafter be divided 
among the consumers. This result will give the widest possible 
diffusion of the benefits of the improvement ; and the attain- 
ment of it, at least with regard to some considerable part of the 
increase of productive power, may be assumed to give the great- 
est possible social gain. 

But this is not to say that the interests of society will be best 
promoted by throwing the whole gain, first into the hands of 
the employers, and afterwards into those of the consumers. It 
is not to say that such a result would serve the ends of justice. 

So far as any notion of justice, as applied to rates of wages, 
can be formulated, it would seem at least to involve the require- 
ment that any increased strain be compensated by increased pay. 
While the course of improvement tends to narrow the range of 
necessary skill, and in some cases makes it possible to introduce 
a lower grade of workers, it often aggravates the actual intensity 
and strain of the work. There may be an actual increase of 
physical exertion. The undercutting machines, which are being 
so rapidly introduced in the bituminous coal mines, have to be 
held steady by the miner, partly by the strength of his arm and 
partly by the weight of his body. To hold one of them is said 
to be far more exhausting than to handle the pick, because of 
their violent and incessant jar. In general, however, the strain 
which machinery imposes is the strain of constant, unswerving, 
and monotonous attention. With every improvement of the mule 
and the power loom the worker has taken charge of more spindles 
and more shuttles, and the speed has been increased ; and the 
unanimous assertion of the workmen is that the change has 
progressively increased the demands of the work. The hand 
shoemaker, turning from one operation to another as his work 
progressed, .and varying his task with sundry necessary prepara- 
tions, had a less exhausting day than the shoe-factory operative. 



610 SELECTED HEADINGS IN ECONOMICS 

The clothing maker, who sits week after week and sews a single 
seam on each of an endless succession of coats, leads a more 
nerve-wearing life than the tailor who makes a complete garment. 
Every such change, by which the physical or the nervous strain 
of labor is increased, ought, it should seem, to be accompanied 
with an increase of time wages. 

From the social standpoint justice might also seem to require 
compensation for the destruction of the value of special skill. 
When a man has devoted years to the acquirement of an ability, 
he may be excused for feeling that he has a vested right in his 
income from the use of it. This feeling, indeed, is at the bot- 
tom of the machine breaking and the other less violent means 
by which men have undertaken to maintain their hold on work 
which they have felt belonged to them. 

Without acknowledging the validity of this idea, may it not 
be admitted that a disappointment of the reasonable expectations 
on which the actions of men have been based is always a social 
misfortune ? It is not a wrong, unless either government or 
particular men can be held responsible both for the expectations 
and for the disappointment of them. Yet any means by which 
such disappointment can be minimized — in the present case, 
any means by which, without checking technical progress, the 
hardships which progress involves can be made less severe — 
must be regarded as accordant with the true interests of society. 

Finally, the wage-earners are the class of society whose eco- 
nomic position is weakest. This fact alone might justify the 
opinion that whatever strengthens their economic position is, so 
far, likely to increase the aggregate strength and to promote 
the aggregate well-being of society. 

Waiving any possible question of changes in laws and social 
arrangements, by which it might be attempted either to exempt 
labor from bargain and sale in the market or essentially to alter 
the market conditions, the only way in which the workmen in 
a particular trade can, by their own action, avoid the imme- 
diate hardship that results from improvement of machhiery and 
methods in their own craft seems to be by united action, taken 
through some such organization as a trade union. It is believed 



SOME ASPECTS OF THE LAIJOK PKOi'.LE.M 1)11 

to be impossible to point out any instance in which unorganized 
workmen have received any innnediate and visible beneiit from 
the introduction of new machinery in their trade. Any number 
of instances might be pointed out in which they have suffered 
immediate and visible damage. It has been shown to be possi- 
ble, however, by wise and united action, to secure a portion of 
tlie benefits of machinery for the workmen immediately con- 
cerned, while leaving other portions to be divided between the 
employer and society in general. 

Granting the actual introduction of machinery, two main 
lines of policy in meeting it are open to workingmen and their or- 
ganizations. The possessors of the skill which the older processes 
require may undertake to maintain the old processes in compe- 
tition with the new by reducing their rate of pay. This is the 
course which is likely to be adopted by unorganized and unin- 
structed workers. It is the course which was followed by the hand 
weavers of England early in the nineteenth century, and their 
miserable decay furnishes the classical example of the folly of it. 
They undertook by lengthening their hours and increasing their 
speed to compete in price with the products of the power loom. 
As the power loom was progressively improved, the quality of its 
products rose and the prices of them fell. As the haste of pro- 
duction on the iiand loom increased, the quality of its products 
deteriorated. They lost the individuality and the excellence of 
construction and finish which had at first given them a superior- 
ity of value. The final result was the extinction of hand weaving, 
after years of hopeless and squalid struggle by the weavers. 

The other policy is one which is not practically possible 
unless the workers act together in some form of organization, 
nor unless they take from the beginning a far-sighted view of 
their true interests. It is one which lias been adopted by the 
printers in tiie United States and the hand shoemakers in Great 
Britain. The British shoemakers, tlie Amalgamated Society of 
Cordwainers, when shoemaking machinery began to be intro- 
duced, steadily refused to lower their prices for hand work, but 
took into their society all who were employed in tlie new fac- 
tories, and advised their old membei"S, so far as they could not 



612 SELECTED READINGS IN ECONOMICS 

get employment at hand work at the old rates, to take work in 
the factories at whatever they could get. Organizing the factory 
workers, they helped in the establishment of new standard rates 
for them ; they maintained their own standard rates, and even 
increased them ; and, by turning their attention to the produc- 
tion of the most perfect goods, they have kept a place for them- 
selves in the industrial world, and have not only suffered no 
loss from the competition of machinery, but have progressively 
increased their skill, and, along with their skill, their wages. 

In this case it ultimately seemed best to let the new machine 
workers form a union of their own, separate from that of the 
old handicraftsmen. The latter union maintains itself as a small 
and compact body of highly skilled workmen. In the most con- 
spicuous example of an analogous policy and an analogous suc- 
cess in the United States, the old hand workmen and the new 
machine men have continued in the same organization, but with 
results not less successful. The case is that of the International 
Typographical Union. When the typesetting machines began 
seriously to threaten the hand compositors early in the last 
decade of the nineteenth century, the union adopted the policy 
of avoiding any opposition to the introduction of machines, and 
demanding that they be run by union men and under wage scales 
and conditions of labor fixed by the union. The machines dis- 
placed, for the time being, a considerable number of composi- 
tors; but many more would have been displaced if the unions, by 
fighting the machines, had compelled the manning of them Avith 
non-unionists. In that case it is probable that comparatively 
cheap hands would have been employed, and that low rates of 
wages for them and a long workday would have been established; 
that the wages of hand compositors, struggling to compete with 
the machines, would have been lowered, and their hours of labor 
would have been increased. The actual policy of the union has 
resulted in the maintenance of the wages of hand compositors, 
in a gradual lessening of their hours, and in the maintenance 
for machine operators of even higher wages, on the average, and 
less hours than those of the hand printers. More printers are 
now employed than ever before. 



SOME ASPECTS OF THE LA1?0R PROBLEM 613 

2. The Knights of Labor and the American Federation of Labor. * 

Prior to the Civil War national trade unions in the United 
States multiplied without any corresponding success in the for- 
mation of enduring alliances among them. Labor federations, 
when they existed, were local in character. Thus the General 
Trades Ljiion of the City of New York, organized in 1833, was 
a federation composed of the trade unions of that city.^ On 
January 8, 1834, the General Trades I'nion of Boston was 
organized upon the same general lines as the New York fed- 
eration, and shortly thereafter similar organizations came into 
existence in Philadelphia and Baltimore. In 1866 certain rep- 
resentatives of organized labor assembled at Baltimore and 
formed the National Labor Union, with the establishment of the 
eight-hour working day as its chief aim. In 1867 and again 
in 1868 this organization held conventions and displayed con- 
siderable vigor ; but active participation in the national cam- 
paign of 1872 created internal dissensions, and the union soon 
ceased to exercise any large influence. A convention including 
repiesentatives from several national and international unions 
met in Cleveland, July 15, 1873, for the purpose of starting 
a movement for a national federation similar in scope to the 
National Labor Union. Though a declaration of principles and 
a constitution were adopted, the Industrial Brotherhood, as the 
new federation was called, possessed little vitality and soon 
disbanded. 

In the general industrial depression of the early seventies, 
union after union was forced to disband. The system of low dues 
and slight benefits, now universally condemned as a trade-union 
policy, was then general, and hard times found the labor forces 
unprepared for the emergency. With industrial revival the labor 
world again moved towards organization. The experiences of 
the unions during the depression suggested the need of a strong 

1 By William Kirk. Reprinted, by con.sent of the author, editor, and publisher, 
from Studie.s in American Trade Unionism, pp. 353-380, edited V)y .1. H. 
Hollander. Copyright, 1!»00, by Henry Holt and Company. 

2 Kly, The Labor Movement in America, pp. 43-44 [New York, 1800]; Burke, 
Central Labor Unions, in Columbia University Studies, XII, 28-30. 



614 SELECTED READINGS IN ECONOMICS 

inter-trade alliance supplementary to the local and national 
trade unions then existing, and the order of the Knights of 
Labor undertook to supply this need. This organization, the 
first successful national federation of labor in the United States, 
had its genesis in a local union or "assembly" of garment 
cutters, formed in Philadelphia in 1869, With increase in the 
number of local assemblies a desire arose for a body which 
should represent all the local unions in a certain district. 
Delegates were sent to a common meeting place and a " district 
assembly," designated thereafter as District Assembly No. 1, was 
organized to further the interests of the local assemblies under 
its jurisdiction. This plan proving successful, other district 
assemblies were formed whenever the number of local assemblies 
in a new field justified a federation. 

On August 2, 1877, a circular from District Assembly No. 1 
was sent to all officers and members of the Knights of Labor, 
notifying them of a convention to be held in Reading, Pennsyl- 
vania, on January 1, 1878, for the purpose of forming a "general 
assembly," and establishing a central resistance fund, a bureau 
of statistics, and a system of revenue to aid in the work of organ- 
ization. In response to the call thirty-two delegates assembled, 
formed a representative organization with a strongly centralized 
control, and after deliberation adopted as the name of the body 
so constituted, " General Assembly of the Knights of Labor of 
North America." ^ In the next three years, the Knights of 
Labor — although in full accord with the ideals of the general 
labor movement — developed along lines unmistakably opposed 
to the traditional principle of trade unionism, viz. trade autonomy. 
It placed in the hands of the General Assembly " full and final 
jurisdiction in all matters pertaining to the local and district 
assemblies." ^ The district assembly in turn possessed power 
within its district " to decide all appeals and settle all contro- 
versies within or between local assemblies." 

The Federation of Organized Trades and Labor Unions 
of the United States and Canada was formed in 1881. The 

1 Proceedings of the Knights of Labor Convention, 1S7S, p. 3 [n. p., n. d.]. 

2 Constitution of the General Assembly, 1S7S, Article 1, sect. 2. 



SOME ASPE(^TS OF THE LABOR PROBLEM G15 

Federation was planned as a labor con fedenic}- wliioli might admit 
local assemblies of the Knights of Labor on an equality with 
trade unions. The call for the first convention held in Pitts- 
burg, 1881, read in part : " We have numberless trades unions, 
trades' assemblies or councils, Knights of Labor and various 
other local, national, and international labor unions. But great 
as has been the work done by these bodies, there is vastly more 
that can be done by a combination of all these organizations in 
a federation of trades." In adopting the name " Federation of 
Organized Trades and Labor l^nions " the representatives to the 
congress made a direct concession to the same end. In the first 
congress of the new federation the local assembly of the Knights 
of Labor and the trade union were both represented, and it was 
understood that each should maintain its own organization and 
work in harmony with the other for the federation of all labor 
units. ^ But when the respective positions of the two federations 
became more sharply defined, radical differences appeared. In 
principle there was no inherent antagonism, since the work of 
one might very well have supplemented that of the other, but 
in practice disagreements constantly arose. 

The two organizations differed much in government and 
structure. The first local assembly of the Knights organized 
in 1869 consisted originally of garment workers. A few months 
later, October 20, 1870, the first person not a garment cutter 
was initiated into the order, and tlienceforth the unit in the 
federation changed from a trade union in the strict sense, to a 
new type, the "mixed assembly," having as its primary concern 
the interests common to all productive workers, and not the 
interests of a craft. The " mixed " assembly sought to gather 
into one association all branches of honorable toil, without re- 
gard to nationality, sex, creed, or color.^ This principle guided 
the organizers ^ in their field work, and was largely responsible 
for the remarkable growth of the order in the next few years. 

1 Report of the First Annual Session of the Federation of Organized Trades 
and Labor Unions, 186'J, pp. 8-10 [Cincinnati, 1882]. 

2 Constitution fur Local Assemblies uf the Knights of Labor, 1884- 
8 Constitution of the General Assembly, 1S79, Article 2, sect. 1. 



616 SELECTED EEADINGS IN" ECONOMICS 

On the other hand, the primary unit in the system of organi- 
zation upheld by the Federation of Labor was the local trade 
union, composed of artisans following a single vocation, and 
attached to a national trade union. An exception occurred in 
the case of locals directly affiliated with the Federation, but 
this class formed a minor division and need not seriously qual- 
ify the main statement. In his report to the convention of 1900 
the president said, " The formation of one local union placed 
under its proper jurisdiction, is of greater consequence and 
importance to the safety and progress of the labor movement 
than the issuance of twenty charters for local unions to be affil- 
iated directly with the American Federation of Labor." The 
founders of the federation accepted the abstract principle of a 
common labor cause advanced by the Knights, but held that 
the mechanism through which the interest of all could best be 
promoted was the craft union. The opponents of the autono- 
mous system claimed that the trade union seeks exclusive priv- 
ileges in its particular field at the expense of those engaged in 
other branches of industry. Although these differences marked 
in general the broad distinction between the two federations, in 
special cases they faded away. For instance, it was common to 
find a local assembly of the Knights of Labor composed exclu- 
sively of workmen of one trade wherever conditions were unfa- 
vorable to the mixed assembly. Similarly the organizers of the 
American Federation often found it necessary to form into one 
local union workers of miscellaneous crafts. "Federal Labor 
Unions," analogous in composition to the mixed assemblies of 
the Knights, were organized in those localities where numbers 
did not justify the existence of trade unions. As soon, however, 
as a sufficient number belonging to one craft was gathered 
together, a new local trade union recruited from the member- 
ship of the mixed union was formed. The trade local in turn 
joined the national union of its craft wherever the chance 
presented itself. The same policy is followed at the present 
time. According to the latest (January, 1905) report of the 
American Federation, there are 1181 local trade and federal 
labor unions directly affiliated with the national federation. 



SOME ASPECTS OF THE LABOR PR015LE^[ GIT 

In each case, however, the irregular grouping was considered 
an exceptional form. 

The difference noted in the primary divisions appeared to a 
larger extent in the federate grouping. The district assembly, 
comprising the local assemblies of the Knights of Labor in a 
given locality, corresponded to the central labor union or feder- 
ation of trade unions. Before the Knights of Labor movement, 
the life of these central organizations was ordinarily brief. After 
a stormy experience of personal jealousies, political affiliations, 
and trade-jurisdiction disputes, such associations commonly fell 
apart. As the Knights of Labor grew, many of these weak 
central labor unions were reorganized as district assemblies 
with large powers. A little later, under the organization of 
the American Federation of Labor, they came to hold a less 
important position, and retained merely advisory powers with 
little actual authority. In 1881 ten city federations were repre- 
sented in the convention of " Organized Trades and Labor 
Unions." In 1904 the president of the American Federation 
of Labor reported 569 central labor unions affiliated with that 
organization. 

During the first ten years of the history of the Knights of 
Labor movement the Knights made no provision for organiza- 
tions similar to national trade unions. In the early eighties 
a reaction toward the old individual craft organization made 
necessary the recognition of national trade assemblies as an 
important subdivision.^ At this juncture the cherished prin- 
ciple of the unity of all labor interests was subjected to severe 
test. Mixed assemblies were found too extensive in their sym- 
pathies, and the natural desire for meetings where members of 
one craft could discuss questions primarily of importance to the 
trade reasserted itself. Furthermore, the organization of indus- 
trial forces on a national scale made more pressing the need for 
national labor organizations along trade lines. As an immediate 
result, " national trade assemblies " closely analogous to the 
national trade union emerged. 

^ Constitution of General Assembly, OrdiT of the Knights of Labor, 1SS4, 
Article 12, sect. 1, p. 22. 



618 SELECTED EEADINGS IN ECONOMICS 

Under the law enacted by the General Assembly at the con- 
vention of 1882, there were two methods by which any craft 
within the Knights of Labor could organize as a national trade 
assembly of the order, and gain autonomy over trade affairs, 
preserving, however, close association with other branches of 
organized labor. The first was in accordance with an amend- 
ment to the constitution which permitted five or more trade 
locals to petition the executive board to call a convention for 
the purpose of forming a trade district.^ The members of any 
trade could organize nationally under this provision by bringing 
local assemblies situated in all parts of the country under a 
common supervision. Under this provision the National Har- 
ness, Saddle, and Collar Makers' Union in 1883 was formed as 
a national trade assembly.^ The second method was used where 
trades were organized in several local assemblies under the same 
district assembly. In such cases each trade could form a coun- 
cil composed of three delegates from each local assembly. To 
this council all trade matters were referred independently of 
the district assembly to which the respective local assemblies 
were attached. Carrying this formation a step farther, the law 
provided for national trade councils which could carry on the 
work of local councils on a large scale.^ Thus trade locals in 
all parts of the United States and Canada might continue under 
their respective district assemblies or be attached to the General 
Assembly as the case might be, and obtain the additional advan- 
tage of having their trade problems considered by representatives 
of their own craft. In 1887, when the reaction toward organiza- 
tion by trades had fully set in, the general secretary-treasurer 
reported that there were twenty-two national trade assemblies in 
the order. Thereafter organized labor in the United States tended 
to form national trade unions, which either remained independent 
or became affiliated with the American Federation of Labor. 

The national trade assembly and the national trade union 
differed in one important respect. The national trade assembly 

1 Proceedings of the General Assembly, ISSS,'^. 364 [n. p., n. d.]. 

2 Journal of United Labor, July, 1883. 

3 Proceedings of the General Assembly, 1SS2, p. 368 [n. p., n. d.]. 



SOME ASPECTS OF THE LABOIJ IM^OliLEM G19 

was entirely subordinate to the General Assembly, tlie higliest 
tribunal of the order ; the national trade union stood independ- 
ent, acknowledging a nominal allegiance to the American Fed- 
eration only as a concession to the larger aims of labor. The 
nearest approach to authority exercised by the American Feder- 
ation occurs in jurisdiction disputes between national trade 
unions, where the P^ederation acts in a judicial capacity. The 
officials of the Federation assert that one of the strongest ele- 
ments in the success of the organization has been the absence of 
any attempt to exercise power over the national unions. The 
real bond of union, according to this opinion, is the good will 
and confidence of the constituent members. 

The activity of the two federations in carrying out their 
respective plans of organization, as outlined above, resulted 
from time to time in serious conflict. In theory any agree- 
ment whereby one federation with its branches subordinated 
itself to the other would have prevented discord. For instance, 
the Knights of Labor might have affiliated with the Federation 
of Labor on an equality with national trade unions. But per- 
sonal enmity among the leaders, who steadily refused to con- 
cede recognition to the rival federation, made a permanent 
understanding impossible. A circular issued by authority of 
the 1882 convention of the Federation of Organized Trades 
and Labor Linions declared : " The open trades unions, national 
and international, can and ought to work side by side with the 
Knights of Labor, and this would be the case were it not for 
men overzealous or ambitious. Each should understand its 
proper place and work in that sphere." As each persisted in 
its efforts to include all wage-earners, the circles of activity 
intersected, with the consequence of dual authority on the part 
of the federations and divided loyalty on the part of the indi- 
vidual members. 

The American Federation, profiting by the experience of 
earlier federations, from the beginning resolutely opposed dual 
organization in any trade. It was claimed that if an excep- 
tion were made in favor of the Knights of Labor assemblies, a 
dangerous precedent would be established and the existence of 



620 SELECTED READINGS IN ECONOMICS 

trade autonomy imperiled. Where dual affiliation did exist — for 
example, in the printing, hat, cigar, and brewing industries — it 
was seen that strict trade autonomy could not be maintained. 
The opposition to the national trade assembly of the Knights, in 
particular, arose not so much from the lack of trade autonomy 
as from the persistent attempts of the officials to organize as- 
semblies of trades haying a national or international union. 
The Knights of Labor, on the other hand, having in mind the 
absolute control which the General Assembly had over all 
branches in case of dispute, were anxious to secure as mem- 
bers persons already belonging to local and national trade 
unions. In carrying out this policy the Knights were led into 
serious conflict with the national trade unions. Among other 
organizations affected in this way was the Bricklayers and 
Masons' International Union. The national secretary of this 
union in an official statement (October 1, 1886) voiced the 
sentiment of the trade unionists : " We claim that any district 
assembly of Knights of Labor masons, in or near a locality 
where a branch of our organization exists, is a direct injury to 
the advancement of our craft, for we claim and demand that all 
men following a distinct calling having a national or inter- 
national trades union in existence should be required to join 
the order of his calling and no other, so that all may be 
members of a parent organization." ^ 

The disputed questions were discussed at repeated confer- 
ences, the American Federation adhering throughout to its 
original stand against dual affiliation in trade organization. At 
a meeting held in Philadelphia in 1886, between representatives 
of the Knights of Labor and of the national trade unions, the 
latter proposed as the basis of an adjustment : " The charter of 
any Knights of Labor Assembly of any trade having a national 
or international union shall be revoked, and the members of the 
same be requested to join a mixed assembly or form a local union 
under the jurisdiction of their national or international union." ^ 

1 Reports of the President and Secretary of the Bricklayers and Masons'' Inter- 
national Union of America, for ISSG, p. 105 [Washington, n. d.]. 

2 Proceedings of the General Assembly, 1SS7, pp. 1444-1447 [n. p., 1887]. 



SOME ASPECTS OF THE LABOR PROBLEIM 021 

Renewed efforts were made from time to time to reach an 
amicable settlement. In 1889 and again in 1891 the propo- 
sition was restated by the Federation with slight modifica- 
tion of terms. The American Federation of Labor promised in 
1889, that should the Knights of Labor " discountenance and 
revoke the charters of all trade assemblies or districts within 
the order, the Federation would agree to urge its members and 
all working people to become members of mixed assemblies of 
the Knights of Labor." The adoption of this plan would have 
given the national unions affiliated with the P'ederation com- 
plete control over their respective fields in all trade matters, 
and would have left to the local and district assemblies of 
the Knights of Labor the work of intellectual, social, and polit- 
ical improvement. In other words, the Knights of Labor, di- 
vested of all trade authority, would have become the central 
reform bureau of the labor movement. The Knights of T>abor, 
however, refused to accept the terms proposed, and the Federa- 
tion decided at the annual convention of 1894: "No meet- 
ing or conference with the Knights of Labor officials shall 
be held until they declare against dual organization in any 
one trade." 

The opposed principles of the two organizations met sharply 
in a single issue, — the mutual recognition of working cards. 
The matter was vital to each organization. If the Federation 
and the national trade union did not recognize the mixed 
assembly and the trade assembly as bona fide locals, then the 
members were not union men and could not work with union 
men in closed shops. On the other hand, if the working card of 
the Knights of Labor were respected by the trade unions, the 
members by that act gained status as union men, and the Federa- 
tion practically lost its fight for trade autonomy. In 1886, at a 
conference with the trade unions held for the purpose of " dis- 
cussing past grievances, and to pave the way for the avoidance 
of future ones," the Knights of Labor proposed the mutual 
exchange and recognition of working cards, — " the card of any 
member of the order admitting him to work in any union shop, 
and the card of any union man admitting him to work in any 



622 SELECTED READINGS IN ECONOMICS 

Knights of Labor shop." ^ The Federation of Labor refused to 
concede this position on the ground of self-preservation, since 
blacklisted and expelled members of trade unions or even men 
hostile to trade unionism, could be initiated into the order, and 
the trade unions would thereafter be obligated to accept the 
cards of these non-union men. Even though the Knights of 
Labor denied such an intention, the constitutional power to do 
so was present, and remained a menace so long as the standards 
of the two federations with regard to union membership were 
different. 

On the other hand, the Knights of Labor suffered if the 
mutual recognition of working cards failed. Where a temporary 
alliance of forces was necessary, as in a sympathetic strike, the 
Knights could hardly be expected to work shoulder to shoulder 
with unionists, if at the conclusion of the struggle the trade 
unions could boycott the assemblies belonging to the order by 
refusing to recognize the working card. The unfavorable atti- 
tude of the Federation meant little to the Knights in 1886 when 
the order was strong and influential. With the growth of the 
trade-union spirit within the order and the corresponding decline 
of the mixed assembly, the question became more serious. No 
adjustment or compromise was ever reached, and it was only 
when the Knights of Labor ceased to hold an important position 
in the labor movement that the question at issue between the 
organizations practically settled itself. 

From this review of the structural differences between the 
two federations, attention can now be turned to a comparison 
of their respective activities in certain typical fields. This will 
involve a survey of the policies of the two organizations with 
respect to (1) the union label, (2) cooperation, (3) strikes and 
boycotts, (4) the reduction in the length of the working day, 
(5) politics and legislation. 

The union label. The union label was first used by a local 
cigar makers' union in San Francisco in 1874 to distinguish 
American-made cigars from the work of Chinese competitors. 

1 Proceedings of the General Assembly, 1887, p. 1446 [n. p., 1887]. 



SOME ASPECTS OF THE LAJ'.OR PKOIU.KM 028 

Local assemblies of cigar makers were active in the Knights of 
Labor as early as 1882,^ but ai)parently the use of the label did 
not at first cause any difliculty between the assemblies and the 
unions. The Journal of the Knights of Labor declared in 
November, 1882, " Both organizations, the Knights and the 
Cigar Makers' International Union, have a common purpose in 
trying to protect the product of union labor." Unfortunately, 
however, while the Cigar Makers' l^nion had adopted a blue 
label as the stamp of union goods, the Knights of Labor, wish- 
ing a distinctive mark, chose a white cigar label to circulate 
side by side with the blue label of the union. Largely as a 
result of this policy harmony soon gave way to a keen compe- 
tition between the two organizations, growing more and more 
intense until it became bitter rivalry and open conflict. The 
general principle at issue in the controversy was the right of 
the Knights of Labor to organize whom they pleased, since the 
Cigar Makers' Union objected to the initiation into the order of 
workmen who had been branded as unfair by the union. 

It was claimed that early in 1886, during a lockout by manu- 
facturers in New York City in consequence of a strike against 
a reduction of wages, certain cigar factories involved had been 
organized by the Knights of Labor. Similar acts of hostility, 
the union asserted, had been committed at Milwaukee and 
Syracuse.^ Notwithstanding a promise made by the general 
executive board of the order to investigate the charges as soon 
as opportunity would permit, and to revoke the charter of the 
offending assembly if the statements proved correct, the cigar 
makers ordered a boycott against all cigars bearing the label of 
the Knights and endeavored in every possible way to discredit 
the order. In a letter to the general master workman of the 
Knights, dated March 6, 1886, the president of the Cigar Makers' 
International Union said, "I consider the action of your organ- 
izers in New York City a bold and unscrupulous attack upon 

1 Proceedings of the General Assembly, Knights of Labor, 1SS2, pp. 374-375 
[n. p., n. d.]. 

2 Proceedings of the General Assembly, Knights of Labor, 188G, Special Session, 
pp. 30, 50 [n. p., n. d.]. 



624 SELECTED EEADINGS IN ECONOMICS 

recognized trade-union principles, and as hostile to the Cigar 
Makers' International Union in particular." In retaliation the 
General Assembly in 1886 adopted a resolution ordering all 
employees in the cigar trade, who were members both of the 
Knights of Labor and of the Cigar Makers' International Union, 
to withdraw from the union or leave the order.^ This resolution 
marked a turning point in trade-union history in that it gave a 
determining impetus to the movement, already strong, from the 
Knights of Labor assembly in the direction of the autonomous 
trade union. The order discovered its mistake as soon as the 
convention of 1886 had adjourned, and at the following conven- 
tion endeavored to correct the error by the following amendatory 
action : " Resolved, That members expelled from the order by 
the mandate adopted at the Richmond General Assembly con- 
cerning members belonging to the Cigar Makers' International 
Union be reinstated without paying initiation fee or back dues, 
and that all local assemblies are hereby ordered to place in good 
standing all members expelled by said order." ^ 

Throughout the controversy between the Knights of Labor 
and the cigar makers, the Federation of Labor exerted its influ- 
ence in favor of the union. If the Federation had recognized 
the label of the Knights of Labor, the order would have been 
virtually granted full rights as a union, and vested with coordi- 
nate authority in the conduct of trade matters. The proposed 
"treaty" of 1886 contained the provision that "the Knights 
of Labor shall not establish or issue any trade mark or label 
now issued, or that may hereafter be issued by any national 
or international trade union." ^ The Knights of Labor, how- 
ever, regarded itself as a pioneer in the use of the label and 
refused to part with its independent use. At subsequent con- 
ferences between representatives of the Knights of Labor and 
the American Federation, the two organizations insisted on 
their respective demands without definite result. 

1 Proceedings of the General Assembly, 1886, pp. 137, 138, 200, 282 [n. p., 
1886]. 

2 Proceedings of the General Assembly, 1887, pp. 1733, 1822 [n. p., 1887]. 
^Ibid., p. 1446. 



SOME ASPECTS OF THE LA150R PROBLEM G25 

The methods employed by the two organizations in extending 
the use of the trade label have been largely influenced by their 
structural difl^erences. The Knights of Labor, highly centralized, 
have been able to require the issue of labels from headquarters, 
and to vest the general executive board with complete control 
over their distribution. Thus the constitution (1901) of the 
General Assembly provides (Article 4, sect. 19) : " The general 
executive board shall take charge of and regulate all seals or 
protective designs to be distril)uted to members of the order, in 
such form as will be of service in protecting the products of 
their labor, and shall prescribe such rules and regulations as it 
may deem necessary for the use of the same ; and no assembly 
or other branch of the order under penalty of forfeiture of 
charter shall indorse or sanction the use of any seal or design 
not issued or indorsed by this board." The general execu- 
tive board of the Knights of Labor in 1884 adopted a general 
label to be used upon all goods manufactured or sold by mem- 
bers, but this device was soon replaced by individual trade 
labels. While the General Assembly has never declined to 
ratify the use of distinctive trade labels, it has always required 
that each must bear also the mark of the order, — a triangle 
within a circle. 

The American Federation, on the other hand, has made no 
attempt to control the labels of national and international unions, 
merely indorsing and advocating those already adopted by the 
different trades, urging all union men to demand goods having 
the union stamp, and assisting in the formation of active label 
leagues to aid in educating the consuming public in the nature 
and appearance of trade labels. Only the labels used by local 
and federal labor unions, directly attached to the American 
Federation, are under the control of the Federation. The 
Federation has from time to time considered the adoption of a 
universal label as a means of gaining uniformity and more par- 
ticularly of preventing counterfeiting. In 1900 the oflieials of 
the Federation obtained a legal opinion, to the effect that if all 
unions would surrender their labels and adopt that of the F'eder- 
ation of Labor as the authorized one, counterfeituig could be 



626 SELECTED EEADINGS IN ECONOMICS 

more readily punished by law. Inasmucli as this would involve 
the surrender by each union of some part of the very trade 
autonomy for which the Federation has always contended, and 
the recognition of the sovereignity of the Federation, at least 
for the purpose of " issuing, controlling, protecting, and defend- 
ing the universal label," ^ the step has not been taken. 

Cooperation. It is clear that the founders of the Knights 
of Labor conceived an ultimate industrial system in which 
workmen should be their own employers. For inaugurating 
the cooperative commonwealth the structure of the Knights of 
Labor was far superior to that of the rival federation. The 
mixed assembly comprised men in many walks of life, and 
largely controlled demand as well as production. If a trade 
local embarked in a cooperative enterprise, only a limited num- 
ber of consumers were directly concerned ; but when a mixed 
local in a community organized into Knights of Labor assemblies 
ventured on independent production, the collective patronage 
affiliated therewith assured a market. Two schools of thought 
early differentiated themselves in the Knights of Labor. The 
one advocated an aggressive policy of strikes in order to enforce 
demands. The other, representing the conservative element, 
emphasized the futility of strikes as a factor in attaining 
permanent reform. It was due to the influence of the peace 
adherents that cooperation found persistent encouragement. In 
June, 1882, a cooperative fund was established and a coopera- 
tive board was created for the purpose of encouraging and con- 
ducting cooperative enterprise. Investments were made and 
enterprises started as the financial condition of the order justified. 
The compulsory nature of the law, however, provoked serious 
opposition, and contributions were soon made voluntary .^ With 
smaller resources the officials thereafter sought to realize at 
least in some degree the industrial state conceived as the ulti- 
mate aim of the movement. Experiments in cooperative stores, 
factories, and institutions were reported in 1882 from seventeen 

1 American Federationist, December, 1900, pp. 376-377 ; Report of Proceed- 
ings, American Federation of Labor, 1900, p. 20 [Louisville, 1900]. 

2 Constitution of the General Assembly, Knights of Labor, 1884-, P- 16. 



SOME ASPECTS OF THE LAllOU PllOl'.EEM 027 

localities of the one hundred represented : ' in 1887 the general 
cooperative board announced that eight halls and buildings were 
owned, and that eleven newspapers and lifty-four workshops, 
factories, etc., were engaged in productive cooperation.^ The 
general result of such ventures was disappointing, leading to 
increasing reluctance to embark on independent undertakings 
and even to a desire to abolish the coiiperative board. 

Probably the chief cause of failure was the lack of business ex- 
perience in the management of the cooperative enterprises. Such 
undertakings ordinarily originated in a strike or lockout, wheie 
men entered upon the project with funds drawn from the central 
treasury. As soon as the trouble ceased, and the choice arose 
between a certain position and participation in a risky venture, 
the enthusiasm so apparent at first abated, often bringing a total 
loss upon the General Assembly. The small confidence placed in 
the managers, engendering jealousies and constant suspicion, and 
the opposition met on all sides from capitalist producers, may 
also be cited as important influences in the business failure of the 
Knights. The most ambitious venture of the Knights of Labor 
in cooperation took place in 1884, when a coal mine at Cannell- 
burg, Indiana, was purchased for (^10,000. An assessment of 20 
cents per member was levied in October, 1884, for the purpose 
of making improvements. The general secretary in his report 
to the eleventh session of the General Assend)ly, 1887, said: 
" Among the receipts of the office will be shown in the neighbor- 
hood of $2000 received from the I'nion Mining Company on 
account of the Cannellburg Coal INIine. We shall all be glad to 
learn that the investment of more than f 20,000 instead of being 
a dead loss bids fair to be a source of income to the Order." 
Misfortunes, however, came in rapid succession, until in 1897 the 
general executive board decided to sell the mine for $4000. 

The ideal of co()peration as conceived by the order included the 
establishment and maintenance of industrial peace by bringing 

1 Proceedings of the General Assembly, Knights of Labor, Sixth Regular 
Session, 188^, p. 201 [n. p., n. d.]. 

2 Proceedings of the General Assrmbb/, Knights of Labor, Eleventh Regular 
Session, 1887 [ii. p., 1887] ; Rejiort uf the General Cooperative Board. 



628 SELECTED READINGS IN ECONOMICS 

both employers and employees into a single organization. Though 
this ideal likewise was not realized, it explains the readiness with 
which the Knights so often consulted the wishes of the employ- 
ers, and the willingness with which the order joined hands with 
one organization of employers, — the Farmers' Alliance. The 
American Federation of Labor, on the other hand, made no at- 
tempt to become an employer through cooperative enterprise, 
and even refused to organize farmers into unions on the ground 
that they were employing farmers and not workmen. 

Strikes and boycotts. The Knights of Labor in principle have 
stood consistently for the arbitration w4th employers of all griev- 
ances. The preamble to the constitution adopted by the General 
Assembly in 1878 favored "the substitution of arbitration for 
strikes, whenever and wherever employers and employees are 
willing to meet on equitable grounds " ; and the preamble to the 
constitution of 1884 included as one of its demands, " the enact- 
ment of laws providing for arbitration between employers and 
employed, and to enforce the decision of the arbitrators." In the 
event of arbitration failing, the boycott was regarded as the most 
effective weapon of labor. The same width of organization that 
facilitated the distribution of cooperative products enabled the 
Knights to make effective use of the boycott. Designed as a 
temporary expedient, this device was regarded as more effective 
than the strike, without involving the suffering attendant upon 
all protracted struggles. In the use of the boycott, the inter- 
trade form of labor organization enjoys a peculiar advantage. 
A trade union in any locality may cease purchasing an article 
without appreciably reducing its sale, since the proportion of 
consumers belonging to any single union is necessarily small ; 
but an assembly of the Knights of Labor supported by a large 
part of the consumers in the vicinity wielded an influence pro- 
portional to the purchasing power of all the members interested. 
More important still, under the centralized power by which the 
General Assembly controlled the subordinate divisions, the ob- 
servance of a boycott might be strictly enforced on all members, 
since any assembly refusing to obey an order issued by the gen- 
eral executive board was guilty of insubordination and might be 



SO:\rE ASPECTS OF THE LABOR PROBLEM 020 

suspended. In actnal practice, however, the general executive 
board, wliich had authority to place a boycott, usually depended 
on the voluntary action of the membership. Circulars containing 
a full statement of the case were sent to the local assemblies, with 
the request that they be read at successive meetings to acquaint 
the members wath the facts. In some cases pressure was brought 
to bear on retail dealers who were accustomed to handle the goods 
manufactured by the boycotted firm.^ 

The American Federation of Labor has paid considerable 
attention to the exercise of the boycott. The usual method em- 
ployed in placing a boycott is as follows : National unions having 
grievances against employers send resolutions to the headquarters 
of the American Federation of Labor. The committee of the 
Federation whose duty it is to investigate the justice of the com- 
plaint, reports to the executive council or to the annual conven- 
tion if in session. In case of a favorable report, a boycott is 
declared on the products of the iiniis involved, and the names 
of the manufacturers are published monthly in the " unfair list" 
of The American Federationist^ the official journal of the Ameri- 
can Federation of Labor. In addition to placing the firms on the 
" unfair list," circulars requesting all union men to cease 
purchasing the products of the boycotted firms are sent to the 
unions composing the Federation. At the present time the 
national officials exercise considerable care in the use of the boy- 
cott, and limit the number of firms on the "unfair list" in order 
that the boycott may be concentrated.^ 

At their fourth convention in Pittsburg, 1880, the Knights 
of Labor declared, " Strikes are as a rule productive of more 
injury than benefit to the working people, consequently all 
attempt to foment strikes will be discouraged." The general 
master workman in his address to the sixth regular session of 
the General Assembly in 1882 said, "A strike cannot remove 
or repeal unjust laws, for at best the strike secures but a tem- 
porary relief ; it may result in an advance of wages, but if so it 

^ Journal of United Labor, February 11 and 25, 1888. 

2 Report of Proceedings of the American Federation of Labor, 1904, P- 85 
[Washingtuii, 1U04]. 



630 SELECTED EEADINGS IN ECONOMICS 

is a dearly bought victory, and at the first available opportunity 
another reduction is imposed." At that time no provision for 
strikes appeared in the constitution of the General Assembly ; 
but as the order came, with its growth, more and more into 
touch with practical affairs, periodic strike fevers swept over 
the membership and strike regulations became necessary. In the 
constitution of 1884 district assemblies were authorized " to 
adopt rules and regulations in regard to strikes " and district 
executive boards were given power to accept or reject the terms 
of settlement offered by employers. ^ Moreover a district assem- 
bly, having ordered a strike of any local in its jurisdiction, was 
permitted to draw upon the funds of other district assemblies 
whenever its assistance fund had been exhausted.^ The amount 
received in this way from different assemblies was considered a 
loan without interest, to be repaid as soon as possible. 

The new strike spirit did not confine itself to inaugurating 
trade or local strikes. Strong influences were at work to con- 
vert the order into an aggressive militant organization. Accept- 
ing the motto, "An injury to one is the concern of all," in the 
literal sense, the newly initiated element sought to widen the 
area of every strike by ordering out all employees of an offend- 
ing employer. The Knights of Labor were well organized for 
undertakings of this character, controlling as they did all trades, 
and vesting in the General Assembly the right to order all sub- 
ordinate divisions on strike whenever the situation justified such 
action. The disastrous end of the strike on the Missouri Pacific 
railroad system in 1886 brought the advocates of sympathetic 
strikes into temporary discredit. Resolutions were adopted at 
the special session of the General Assembly in 1886, forbidding 
any local, trade, district, or state assembly to declare a strike 
before a secret ballot had been taken of all the members in good 
standing and in no case permitting a strike unless two thirds of 
those immediately concerned voted in favor of it.^ In two other 

1 Constitution for District Assemblies, Knights of Labor, 1SS4, Article 7, 
sects. 1, 2. 

2 Constitution of the General Assembly, 1884, Article 15, sect. 6. 

3 Record of Proceedings of Special Session of the General Assembly, 1886, 
p. 49 [n. p., n. d.]. 



SO.Ml-: ASPECTS OF THE LA1U)1I Pllor.EKM 03] 

instances — the longshoremen's strike of 1887 and the Heading 
IJaih'oad strike of 1888 — the Knights of l^abor tried the expe- 
dient of the sympatlietic strike on a large scale, and each time 
failed to obtain their demands. Though the machinery for 
declaring sympathetic strikes remained, the order thereafter 
accepted the general verdict that federation activity in the form 
of sympathetic strikes was unprofitable. 

The American Federation of Labor has from the outset re- 
garded strikes as the necessary means to gain trade-union ends 
under a system of capitalistic production. Being merely an 
advisory center, and depending upon the support of trade 
unionists working through their respective national unions, 
the Federation has been unable to act positively or directly with 
respect to strikes. Jt has recommended certain policies such as 
the system of high dues and benefits, but it lacks the power to 
control strikes, so prominent in the Knights of Labor. Conse- 
quently the Federation, fully aware of this limitation and profit- 
ing by the costly experience of its contemporary, has followed 
a conservative course in the various conflicts between employers 
and employees, and has acted only as a source of moral and 
financial support to the national unions involved. While sym- 
pathetic strikes are not opposed by the Federation, and the vari- 
ous national trade unions are urged on occasion to assist other 
unions, the Federation holds it as a principle that, the amount 
and character of assistance must be left to the judgment of each 
union. Strict adherence to this position limits the activity of 
the Federation to the collection and distribution of financial 
assistance to striking unions. It claims no power to call sym- 
pathetic strikes. 

Ih'ductiun in the length of the ivorking day. In the original 
platform of the Knights of Labor one of the most prominent 
of the expressed aims of the order was, " The reduction of the 
hours of labor to eight per day, so that the laborers may have 
more time for special enjoyment and intellectual improvement, 
and be enabled to reap the advantage conferred by the labor- 
saving machinery which their brains have created." At the 
eleventh session (1887) of the General Assembly the following 



632 SELECTED EEADINGS IN ECONOMICS 

was adopted : " Resolved that the general master workman con- 
fer with the heads of international and national labor organiza- 
tions with a view to holding a convention to bring about the 
adoption of the eight-hour law by a gradual reduction of the 
hours of labor." Nothing of importance, however, resulted from 
this action. Although the Knights possessed a system of govern- 
ment well adapted for general movements, they never formulated 
a definite plan for the inauguration of the eight-hour day. 

During the first few years of its history the Federation con- 
tented itself with mere pronouncements on the subject. At its 
second session in 1882 it declared: "The national eight-hour 
law is one intended to benefit labor and relieve it partly of its 
burdens. . . . We therefore demand the enforcement of said 
law in the spirit of its designers." ^ A resolution at the third 
session, 1883, stated that " the Federation considers the question 
of shortening the hours of labor as paramount to all other ques- 
tions at present." In the secretary's report to the convention of 
1884 a definite plan of action involving the leadership of the 
Federation in the eight-hour movement was strongly urged : 
" It appears to be the generally expressed desire of the societies 
represented in this Federation that it assume the initiative in a 
national movement for the reduction of the hours. Sporadic 
attempts of individual trades in certain localities have met with 
varying degrees of success, but there is little doubt that a uni- 
versal, centrally directed advance would prove both practical and 
triumphant." It was proposed, thereupon, that a vote be taken 
in all labor organizations before the next convention as to the 
desirability of a simultaneous and universal strike for the eight- 
hour day not later than May 1, 1886.^ Realizing that the Federa- 
tion was too weak both in authority and numerical strength to 
carry the project to a successful conclusion, the officials asked 
the cooperation of the Knights of Labor. The latter organization 
refused to indorse the movement, and the plan did not reach 

1 Second Annual Session of Federation of Organized Trades and Labor Unions, 
p. 1 [n. p., 11. d.]. 

2 Fourth Session of Federation of Organized Trades and Labor Unions, 1884, 
pp. 19-20 [Washington, 18841. 



SOME ASPECTS OF THE LAIU^R PROlU.EAr 033 

serious proportions. In 1888 a resolution passed the annual con- 
vention of tlie American Federation of Labor, iixing May 1, 
1890, as the date for a general strike for the eight-hour day, 
and designating certain days in the interval on which simul- 
taneous mass meetings in all cities were to be held. Another 
conference with the Knights of Labor for the purpose of form- 
ing a temporary alliance followed, and though the Knights 
again refused to participate in the movement, the Federation 
continued to make preparations for the struggle. As the date 
mentioned in the resolution approached, the officials sent circu- 
lars, pamphlets, and prominent speakers to different parts of 
the country. 

In the meantime the more conservative leaders urged that 
the movement would have a better chance of success if one 
trade was selected to make the fight, and supported by the 
combin(Hl powers of the other unions belonging to the Federa- 
tion. They argued that the more comprehensive the strike, 
and the greater the numbers involved, the smaller the group of 
workers from which the strikers might draw financial aid. 
This judgment prevailed. It was determined to inaugurate in 
place of a general strike a series of successive trade strikes, one 
trade after another being selected according to strength and 
strategic position until all trades had obtained the eight-hour 
day. This policy has since been followed. In 1890 the Brother- 
hood of Carpenters and Joiners was selected by the Federation, 
and a special assessment was levied in support of the strike. As 
a result the carpenters established the eight-hour day in seveial 
important cities. Other eight-hour strikes by various trades 
have been aided during the past fifteen years. At the twenty- 
fourth convention held in 1904 the American Federation indorsed 
the eight^hour movement of the International Typographical 
LTnion, and pledged both moral and financial support. The 
Federation further decided that if at any time after January 1, 
1906, the Typographical Union needs financial assistance, the 
executive board shall levy the constitutional assessment. The 
present predominance of the American Federation in the labor 
world makes it likely that the "successive strike " will continue 



634 SELECTED KEADINGS IN ECONOMICS 

to be the favored policy in carrying out general movements. 
There seems to be little doubt, moreover, that a series of trade 
strikes well directed and supported by the full strength of 
the working trade unionists will be more successful than a 
general strike, so long as a non-centralized organization like 
the American Federation maintains the leadership in the trade- 
union world. 

Politics and legislation. The Knights of Labor and the 
American Federation of Labor have both recognized the advan- 
tages that a federation of trades has over separate trade unions 
in any reform movement involving political activity, and have 
shaped their respective policies accordingly. The two organiza- 
tions have, however, employed different methods. The Knights 
of Labor as an organization was designed in the belief that the 
general interests of the labor world transcended the interests 
of particular crafts. Since general interests can be best promoted 
by political action, the Knights laid greater stress on political 
activity and aimed to bring into existence ultimately a labor 
party. On the other hand, the Federation holds that the best 
way to promote general aims is by each trade seeking zealously 
its own interests. Trade unionists regard the increase in the 
bargaining power of their members as the chief remedy in im- 
proving conditions. To right trade matters by confronting the 
employer with united strength is of more immediate concern to 
the trade unionists than any indirect gain from educational 
projects. Hence the trade unionist, without the larger social 
outlook enjoyed by the Knights of Labor in the mixed assembly, 
found a substitute in the discussion of trade topics with mem- 
bers of his own craft. 

The position of the Knights of Labor was set forth by the 
general master workman in an address to the seventh session 
of the General Assembly : " One reason," he said, " why politi- 
cal parties degenerate is because the masses of the common 
people are not educated. If we were, we could more easily dis- 
cern the difference between good and bad legislation ; and we 
would not be clamoring so often for the repeal of bad laws. 
The chief aim of the Knights of Labor is to educate parties and 



SOME ASPECTS OF THE LAliOR FK015LEM 685 

govern them intelligently and honestly." ^ In accordance with 
this view, education as a means to the larger end became an 
important branch of activity. The structure of the mixed local 
assembly of the Knights was well adapted to this function, since 
it included men of various callings and widely different walks of 
life. It was believed by the Knights that, where men of a single 
craft met apart from members of other trades, the class con- 
sciousness necessary for any decisive advance would l)e lacking. 
On the other hand, in their opinion an organization like the 
Knights, representing a highly centralized type of federation and 
disregarding the trade boundaries formerly observed, was well 
fitted to educate its members and promote a feeling of political 
solidarity among all classes of laborers. At the second regular 
session of the General Assembly a resolution was adopted, "• that 
each local assembly shall devote not less than ten minutes nor 
more than one hour of eacli session thereof to the discussion of 
subjects bearing upon the labor question, such as convict labor, 
eight hours, child labor, how can the toiler receive a just share 
of the wealth he creates, etc." ^ The general executive board 
appointed lecturers from time to time, who visited the assemblies 
and addressed tliem upon economic and social topics. In 3Iay, 
1880, appeared the first number of the Journal of United Labor, 
primarily designed as a medium of communication between the 
branches of the order, and as a herald of advanced views. 

The structure of the Knights of Labor, besides affording op- 
portunity for the training of the individual in the study of social 
questions, was highly eflicient for direct political action. Here 
again the advantages of a centralized organization coextensive 
with the domain of labor were marked. Trade unionists in their 
independent organizations were too weak numerically to change 
the result of an election, while the members of the Knights of 
Labor pledged to mutual hel})fulness were numerous enough to 
control the outcome. With the advent of the order, the belief 

1 Proceedings of the Seventh Session of the General Assembly, 1SS3, p. 409 
[n. p., n. d.]. Quoted from an article whicli appeared in the Pittsburg Times 
of July 10, 188.'?. 

2 Herord of the Proceedings of Second Regular Session oftlie General Assembly, 
1879, pp. 28-29 [u. p., a. d.]. 



636 SELECTED HEADINGS IN ECONOMICS 

that labor must cany its demands beyond the workshop, and 
crystallize into the statute law definite reforms, received greater 
attention among workingmen than ever before. The constitution 
of 1879 (Article 10, sect. 1) laid down the principle of political 
activity in the following words : " A district assembly or a local 
assembly under the General Assembly may take such political 
action as will tend to advance the interests of the Order or the 
cause of labor. But when political action is contemplated, the 
• regular business of the district assembly or the local assembly 
shall be concluded, and the district assembly or local assembly 
regularly closed. Local assemblies may properly use their 
political power in all legislative elections, and it is left to the 
discretion of each local assembly to act with that party through 
which it can gain the most. An assembly shall not take politi- 
cal action unless three fourths of the attending members are 
united in supporting such action. No members, however, shall 
be compelled to vote with the majority." From 1880 to 1885 
the intense interest manifested in political affairs produced a 
note of warning from headquarters : " So surely as we run into 
politics shall we be disrupted." Politicians, recognizing the 
political possibilities, joined the order for the express purpose of 
converting it into a voting machine. In 1888 the order was on 
the verge of taking active part in the national campaign, and 
escaped only through the conservatism of the general officers. 
In many localities the secret but powerful membership of the 
Knights had elected labor candidates. So successfully had these 
municipal elections resulted that the rank and file became am- 
bitious for larger victories. A party in which all reformers 
could find a place appeared a fitting substitute for the two cor- 
rupt, boss-ridden, political organizations. Active agitation in 1890 
stimulated a wave of enthusiasm which aided materially in the 
formation in 1892 of the National People's Party, with "land, 
transportation, and finance," as the campaign cry.^ Pledged in 
this manner to political action, the Knights dissipated much of 
their energies in vain efforts to make industrial forces politically 
supreme, and internal dissensions resulted. 

1 Journal of the Knights of Labor, Vol. XIII, No. 2. 



SO.AIE ASPECTS OF THE LABOR PROBLEM 637 

The Amercian Federation lias resisted all allurements to 
political action. This freedom from affiliation with political 
parties, however, has not been maintained without a stiuggle 
on the part of the ruling element in the Federation. The first 
convention, held in Pittsburg, recommended "all trades and 
labor organizations to secure proper representation in all law- 
making bodies by means of the ballot, and to use all honorable 
measures by which this result can be accomplished." ^ At every 
convention of the Amercian Federation, and at almost every 
meeting of local and state federations, the same question has 
arisen in some form or other. Until the pressure upon the 
Federation to declare for independent action became strong, no 
positive declaration of political principles was made. The com- 
mittee on resolutions at the convention of 1893 reported a 
political programme, the several planks of which were adopted 
separately with amendments at the convention of 1894. The 
convention of 1895, however, declared that ''the failure to adopt 
the planks as a whole was equivalent to a rejection "; and there- 
fore that " the American Federation has no political platform." 
But when the Socialist Labor Party sought admission into the 
American Federation of Labor, decisive action became necessary. 
The application of the Labor Party was rejected on the ground 
that no political party as a party had a right to be represented 
in the councils of the trade unions. Subsequent efforts on the 
part of radical trade organizations to commit the Federation to 
political principles were so persistent that the New York con- 
vention of 1895 declared, " Party politics, whether they be 
Democratic, Republican, Socialistic, Populistic, Prohibition, or 
any other, shall have no place in the conventions of the American 
Federation of Labor." '^ The most persistent attempts in the 
same direction since 1895 have been made by the socialistic 
element in the conventions of the American Federation of Labor. 
In 1894 and 1902 the sentiment with regard to independent 
political action was fairly divided ; but in the conventions of 

' Report of the First Annual Session of Federation of Organized Trades and 
Labor Unionx, JS.s-1, p. 4 [Cincinnati, 1882]. 

2 Constitution of the American Federation of Labor, 1S!)C, Article 3, sect. 8. 



638 SELECTED READINGS IN ECONOMICS 

1895, 1900, 1903, and 1904, resolutions with party political 
activity as tlieir end were decisively defeated. 

The Knights of Labor, although regarding legislative activity 
as secondary to the more direct policy of party political action, 
endeavored to forward labor legislation. The Cleveland session 
of 1886, for instance, adopted a resolution instructing the gen- 
eral master workman to appoint a legislative committee of 
three with headquarters at Washington during the session of 
Congress. The district and state assemblies used their influence 
in state legislatures. Li the early years the chief reward for 
this activity Avas not so much actual legislation as a brighter 
outlook' for future results. The preliminary work had a bene- 
ficial effect in making less difficult the subsequent task of the 
American Federation. Among the most important reforms ad- 
vocated by the Knights were direct legislation, the initiative 
and referendum, bureaus of labor statistics, abolition of the 
contract system on national, state, and municipal works, com- 
pulsory arbitration, prohibition of child labor under the age of 
fifteen, and government ownership of telegraphs, telephones, 
and railroads. 

As the American Federation wields little authority over the 
national unions, it has no way to command unity of sentiment 
on any political issue. The probable result of independent 
political action would have been internal strife with danger of 
complete disruption. The Federation chose therefore to advo- 
cate labor legislation in preference to participating as an organ- 
ization in national and state elections. At the present time the 
American Federation lays great stress upon this function. Each 
convention delegates authority to the officials to center attention 
on special reforms. The executive council frames a bill embody- 
ing the necessary provisions, and champions its course until it 
either dies or passes successfully through the various legal 
channels. The legislative committee maintained at Washington 
is especially helpful in promoting this work. The chief legisla- 
tive reforms advocated in recent years have been the national 
eight-hour law, Chinese exclusion, the initiative and referendum, 
anti-injunction laws, and the abolition of convict and imported 



SOME ASPECTS OF THE LABOR I'KOBLEM G30 

contract labor. In addition the P^ederation from time to time 
has brought to bear inlluence to prevent legislation which might 
prove harmful to the labor interests. Tlie Federation has thus 
opposed laws providing for compulsory arbitration and the 
compulsory incorporation of trade unions. 

The state and city federations perform locally functions anal- 
ogous to the functions umlertaken at Washington by the Ameri- 
can Federation. In 1904 there were 32 state federations and 
569 city federations.^ The more radical local federations hold 
as an ultimate goal " the abolition of the wage system and 
the substitution of collective ownership by the peojale of all 
the means of production and distribution." This socialistic 
element desires organized labor to take part as a unit in all 
state and local elections. The more conservative element, follow- 
hig the example of the national federation, desires to exclude 
party politics from the meeting rooms, and to direct the labor 
■^ote in the interest of those candidates who declare themselves 
favorable to reform measures. The local federation frequentl}- 
oUains from candidates an expression of opinion on important 
issues. Men known to be opposed to organized labor are declared 
unfair, and often defeated by the combined strength of a central 
labor union. Marked activity is likewise displayed in watch- 
ing legislation and advocating plans for industrial and social 
betterment. In a majority of cases the prevalence of the more 
conservative sentiment accounts for the emphasis placed on 
laboi legislation. 

Fnm a membership of 702,924 and an annual income of half 
a mil.ion dollars in 1886, the year of their greatest prosperity, 
the Kaights of Labor have steadily declined in membership and 
power, Among the influences contributing to this result have 
been : the complete failure of expensive sympathetic strikes ; 
the ai'fivity displayed in political affairs ; the presence of two 
distinctforms of orrranization in the order, — the mixed district 
assembl/ and the national trade assembly ; and finally, the over- 
centralisation of power in the hands of the General Assembly 

1 ProceelhKjs of the American Federation of Labor, 1904, P- 1" [Washington, 
1904]. 



640 SELECTED READINGS IN ECONOMICS 

and the national officers. The American Federation, on the 
other hand, has shown marked progress within the last twenty 
years. In January, 1905, the Federation had an enrollment of 
118 national and international unions. The average membership 
of the affiliated unions for the year ending September 30, 1904, 
was 1,676,000. The treasurer reported to the twenty-fourth an- 
nual convention, in 1904, an income of -$307,009.09 with total 
expenses of $203,991.15. The Federation had advocated the 
individual trade strike in preference to the sympathetic strike ; 
it has repeatedly placed itself on record as opposed to political 
action ; it has advanced the principle of organization according 
to trades ; and finally, by guaranteeing to each national or inter- 
national union complete jurisdiction over its own trade, it has 
gained to a large extent the good will of the individual trades. 
So long as efficient leadership maintains this traditional con ser"v- 
atism, there is every reason to predict that the Federation will 
remain an important factor in the American labor movement. 

3. The Hours of Labor ^ 

A large amount of testimony has been taken by the Industrial 
Commission regarding the movement for fewer hours of laoor, 
and the effects of reduction in hours upon production and tpon 
the wages and conditions of workmen and their families. It is 
brought out that in nearly all occupations an increasing ftrain 
and intensity of labor are required by modern methods o:' pro- 
duction. Trade unions have generally been compelled to aban- 
don their restrictions upon the quantity of work that x man 
shall turn out. The introduction of machinery and the civision 
of labor have made it possible to increase greatly the ^eed of 
the individual workman. This intensity varies in differeit occu- 
pations. In glass blowing payment by the piece and uilimited 
output have resulted in peculiarly exhausting efforts. The glass- 
bottle blower, says the secretary of the union, Avorkiig eight 
and a half hours, makes double the number of bottle., but his 
period of usefulness is ten years shorter than twenty years ago. 

1 From the Report of the Industrial Commission, XIX, 76?-790. 



SOME ASPECTS OF THE LAIJOK PKOHLEAL G41 

In Europe, and formerly in this countr}-, a man could blow glass 
up to sixty years of age; now he cannot continue work after he 
is fifty or fifty-five. Machinery operates in some cases to increase 
the intensity of labor, as in the boot and shoe factories, where 
the operator is required to handle thousands of pieces in a day 
and to guide them through the machines. 

The testimony of a representative of the Cotton Weavers' 
Association shows this increasing strain of work. He says : 

It is a general complaint, " I feel that tired at night, I go home and get 
my supper and do not feel like going out at all, but go right to bed." Any- 
body who works in the mills now knows it is not like what it was twenty- 
five or thirty years ago, because the speed of the machinery has been in- 
creased to such an extent, and they have to keep up with it. In some mills 
in this city, and probably in other cities in this state, the operative is com- 
jielled to turn off so much production per week, and if the production does 
not come up to the point, he or she is discharged. There was a time when 
that was not the case. They took their sewing and their knotting along, 
and there was no anxiety about how much work they could get off, but it 
is not so now. Now they work from the time they go in until they come 
out. You can see them going to-morrow morning at ten minutes past six, 
and they will not come out until six to-morrow night. 

The intensity of exertion operates to a less degree in work on 
other classes of machinery where the feeding is nearly automatic. 
Even where machineiy has not been introduced, as in tlie case of 
bricklayers and carpenters, there has come about in the larger 
cities a more minute division of labor, so that one workman is 
occupied continuously on one kind of work, in which he acquires 
great speed. 

It is certain that any programme for reducing this intensity 
of exertion must fail. The entire tendency of industry is in the 
direction of an increased exertion. Any restrictions on output 
must work to the disadvantage of American industry, and the 
employera are often right in their demand, usually successful, 
that such restrictions be abandoned. This being true, there is 
but one alternative if the working population is to be protected 
in its health and trade longevity, namely, a reduction of the hours 
of labor. 



642 SELECTED READINGS IN ECONOMICS 

Extent to which this Reduction has Proceeded Already 

This increased intensity of exertion is not found to so great 
an extent in farm labor. Nevertheless, testimony before the 
Commission shows that there has been a reduction in the 
Northern States in the hours of labor on farms, except in 
the seasons of • harvesting. In the case of farm labor there is 
usually a longer period of rest in the middle of the day, which 
in the South oftens runs as high as two hours. This, of course, 
is a relief to the severity of the work, although it subtracts from 
the hours of leisure at the beginning and the end of the day. 

Effect of Reduction of Working Time on Output 

A reduction in hours in both manufactures and agriculture 
has accompanied a remarkable increase in the use of machinery 
and the division of labor, and on this account it is often impos- 
sible to measure the effect of a reduction of hours on the quantity 
of output. 

The American mechanic, too, works harder than he did 
formerly, whether the hours have been reduced or not, so that 
it cannot always be maintained that a reduction of hours increases 
his speed. The character of his work and the method of pay- 
ment have much to do with the result. It might be presumed 
that when paid by the day the workman would not increase his 
output per hour with the shorter day as much as when paid by 
the piece. But this is not borne out by the testimony. 

The representative of a silk factory, indeed, holds that when 
employees are paid by the day the output in nine hours might 
equal that in ten hours in some departments, as the weaving 
department, though not in the spinning department ; also where 
piece wages are paid instead of time wages. He says : 

Where machinery comes in as a heavy element, a spindle is a spindle, 
and the more minutes it runs in a day the more work it will turn off. It 
cannot go any more in one minute than another, but it runs straight 
ahead, whereas in weaving the element of personality comes in. One has 
the knack of keeping his threads in straight, and another is careless and 
has to stop and mend them and lose 10 or 15 minutes' time. A really 



SOME ASPIX'TS OV THE LAl'.OK I'UOl'.LK.M G43 

good weaver will get off a great many more yards than a poor one on the 
same machine, whereas a spindle is a fixed quantity and the more hours it 
runs the more work it does. 

[Weavers] are paid by the yard, whereas the spinner is paid by the day. 
They get day wages and they have no particular incentive to imstle ; so 
long as they keep their ends up and keeji the spinning machine going they 
are doing their duty. . . . There is little if any objection on the part of the 
hands to working overtime ; you cannot keep it up long ; they get tired of it 
after a while, but for two or three months they rather welcome the change. 

This witness had not actually tested the nine-hour da}-, but 
spoke from his judgment of the probabilities. Another witness, 
a representative of a large drop-forge establishment, testified, 
after three months' experience with the nine-hour day, that there 
is a slightly larger average daily output than there was for the 
ten-hour day in both day work and piecework, though in every 
other respect work was done under similar conditions. This 
has not been due to the fact that methods Avere lax previously, 
for there was rigid supervision under the ten-hour system. A 
part of the gain has been made by reason of the fact that under 
the nine-hour system the men go promptly to work on the minute 
and work up to the very close of the day ; also that a man can 
Avork normally at a higher rate of speed without pushing him- 
self for nine hours than he can for ten hours. The fundamental 
reason, according to this witness, for the keeping up of the 
amount of production is to be found in the spirit of the men 
themselves. If the machines were operated at the highest rate 
of speed and were in perfect condition, and were continuously 
fed, a workman could not maintain his output at the same 
amount if the hours of labor were shortened ; but these perfect 
conditions are rarely, if ever, found. It cannot be demonstrated 
mathematically just how it. happens that a man can produce 
as much in nine hours as he formerly could in ten hours, but as a 
matter of fact it has been the experience of almost every manu- 
facturer, says this witness, that " a man can and will and does do 
more the moment he is justly and fairly and liberally treated." 

It is true also that the hicfher the wajjes and fewer the hours 
the greater is the pressure upon the employer to substitute 
labor-saving devices and to be more careful in his selection of 



644 SELECTED READINGS 11^ ECONOMICS 

high-grade workmen. No doubt it is true that often a giVen 
automatic machine will not run faster per hour in eight hours 
than in ten hours, but industry has by no means reached the 
limit of invention. Invention will cease only when the employer 
ceases to adopt new labor-saving machinery, and every reduction 
in hours and rise in wages keeps the employer further and 
further away from that sluggish policy. While a particular 
machine will not go faster in eight hours than in ten hours, the 
substitute for that machine, which the eight-hour day presses 
upon the employer to adopt, will go faster. Less hours in this 
way have an indirect as well as a direct compensating effect. 
Not only do they make it possible for the workman to keep up 
his intensity of personal exertion during each hour of the day 
and to work more days at a high rate of speed, but they cause 
the employer to economize his labor at every point and to 
improve its quality by better selection. One advantage to the 
employer in less hours is the smaller number of breakages and 
injuries to machinery, owing to more alert attention on the part 
of the workmen. For the same reason it is often true that the 
quality of the work is better. 

This pressure upon the employees accounts in part for the 
greatly increased use of machinery and division of labor in the 
more highly skilled occupations. A representative of the build- 
ing trades who testified before the Commission maintained that 
the lessening of hours made the erection of buildings somewhat 
more expensive ; a contractor stated that it had enabled employers 
to get better men and better work than under the long workday, 
and they do more proportionately in eight hours than they did 
formerly in nine ; also that through invention and the introduc- 
tion of machinery buildings are now put up as cheaply as they 
were in 1872 and 1873, when the hours were ten a day. 

A representative of the Chicago Bridge and Structural Iron 
Workers' Union holds that the eight-hour day has so increased 
the efficiency of the laborer that there is actually more work 
done in eight hours than was formerly done in ten hours. 

A boiler manufacturer, having adopted the eight-hour day, 
testifies that he does not think his men do as much in eight 



SOME ASPECTS OF THE LABOR PKOBLE:\r 645 

hours as they did in nine hours, taking one day as the basis of 
comparison ; but that at the end of the year he believes he 
would find tliat they had done just as mucli as they did when 
they were working an hour longer. One condition necessary to 
bring this result is that he is careful to select the best grade of 
men in his employment and to treat them fairly. A manufacturer 
of mining machinery holds that it is to the interest of the manu- 
facturer to employ his men only eight hours, since he gets better 
service out of the men. Formerly, when the hours of machinists 
were reduced from twelve to ten, and again when they were 
reduced from ten to nine, the same alarming predictions were 
made as now, when it is proposed to reduce them from nine to 
eight ; yet the inventions in machinery have made it possible 
for manufacturers to reduce their hours and still make as much 
money as they did formerly in the longer workday. This wit- 
ness liolds that the eight hours in this industry are needed not 
so much to relieve the men of severe exertion as because a 
better educated man is required to do the work. 

******** 

The eight-hour day in the sheet-steel mills was brought about 
without difficulty, owing to the economy of adopting three shifts 
of eight hours each. Prior to 1884 there were two shifts work- 
ing ten hours, and tlie furnaces lay idle between turns with 
coal in them, and had to be kept hot until the next set came 
on. The experiment was tried of increasing the speed and 
reducing the hours, introducing three shifts ; and to-day three 
shifts are working in all these mills, and making nine instead 
of seven heats, as Avas formerly done in the ten-hour day. 

Reduction of Jfours in Miniyig 

The most important instance in recent years of the adoption 
of the eight-hour working day has occurred in the bituminous- 
coal mining industry. The strike of 1897 secured for the four 
leading eastern coal states — Illinois, Indiana, Ohio, and Penn- 
sylvania — in the bituminous mines the eight-hour day, and a 
similar reduction has been obtained in other Western States. 



646 SELECTED READINGS IN ECONOMICS 

In Utah the eight-hour day was secured in 1896 by action of 
the legislature in a law applying to all mines and smelters. The 
difference in the methods by which this reduction was secured 
in the two cases adds interest to a comparison of the results 
which followed. 

In Utah the operators and employers did not oppose the 
legislation at the time of its enactment, largely because they 
thought it might be the means of keeping down unions and 
strikes and disturbances among the employees. This object has 
apparently been obtained, since there are no active unions in 
the state. A similar law was enacted in Colorado in 1899, but 
was declared unconstitutional by the state court. At the same 
time a number of operators continued upon the eight-hour basis, 
even after the law was declared unconstitutional. 

It should be noted that the reduction of hours in the bitumi- 
nous-coal mines has not been strictly a reduction from ten to 
eight hours, since under the eight-hour rule a miner is required 
to be at his working place when the eight hours begin and when 
the eight hours end, and lunch time is taken from the miner's 
time rather than the emploj^er's time ; whereas formerly the ten 
hours included the time spent in going from the mouth of the 
pit to and from the face of the coal. In the Pennsylvania dis- 
trict the period is nine hours instead of eight, but includes the 
time spent in going to and from the mouth of the pit. Strictly 
speaking, the reduction is more nearly from ten hours a day to 
nine hours a day than from ten hours to eight hours. In Utah, 
however, in the case of the smelting works, the reduction is 
much more extreme, the hours, formerly twelve per day, being 
reduced to eight. This is a reduction of 33^ per cent in the time, 
and .would make necessary an increase of the working force, pro- 
vided there were no increase in efficiency, by 50 per cent. 

There is a general agreement that the fewer hours in the coal 
mines have increased the energy of the workmen, and that 
there has been little or no decrease in the amount of work 
turned out during the day. The men are stimulated " to do a 
good honest eight hours' work " ; the foremen do not find them 
asleep, as they used to, or lounging around, or smoking. 



S():\iK AspKCTs OF THE LAiu)K Pitor.Tj:>r 647 

The effect upon the efficiency of the workmen varies, liowever, 
with different occupations. While it is generally ac^reetl that 
the miner does as nuich work in eight hours as formerly in ten, 
it is held by a few witnesses that this is not tiue of the furnace 
men in the smelters, to which the laws of Utah and Colorado 
applied. The furnace can only take so much material an hour, 
and the furnace men can do no more work on that account. 

On the side of the employer there is abundant evidence that 
the shortening of the working day in the mines has strengthened 
the motive to greater economy of time and better use of ma- 
chinery and labor-saving devices. 

In some of the metal mines of Utah and Colorado three shifts 
have been introduced instead of two shifts of ten hours each. 
The mine that works eight hours can produce more than one 
which works ten hours, not only because the men do as much 
in eight as in ten hours, but because under the ten-hour system 
the mine is idle four hours out of the twenty-four ; whereas 
under the eight-hour system, one shift takes up the tools at the 
moment when the preceding shift lays them down, and no time 
is lost. It is contended by one witness that the system of shifts 
is impracticable in the bituminous-coal mines. The loss occurs in 
operating the tipi)le at which the coal is loaded on the outside. 
It is held that where two or three hundred men are employed the 
day shift and night shift cannot be successfully introduced, be- 
cause the tipple cannot be operated at night. On this account this 
witness claims that the operator endures a loss through the eight- 
hour day, since he loses two hours in the use of his machinery. 

On the other hand, an operator in the Massillon district of 
Ohio states that, where a mine is prepared to take care of the coal, 
a miner can produce as much in the eight hours as he could 
before in the eight and a half or nine hours, because formerly 
during a large part of this time he was waiting for cars, and 
where the equipment of the mines has been in)proved and the 
coal is handled promptly outside, there is not much difference in 
the output. Plainly, if the miner sends up as much coal in eight 
hours as in ten hours, and the mine is equipped adequately to 



648 



SELECTED READINGS IN ECONOMICS 



carry off the coal, then the two hours' loss of time in the use of 
the machinery is by no means an economic loss, since the ma^ 
chinery turns out the same amount of product in either case. 

It is certain that with the shorter working day the employer is 
much more strict in his supervision of his men ; that he requires 
them to be on time, and deals summarily with those who loaf 
or lounge about. This increased care in supervision, coupled 
with economies brought about by the use of machinery wherever 
possible, and the adoption in metal mines of three shifts instead 
of one, are important factors in keeping up the output under 
the eight-hour system. The two factors combined, namely, 
increased energy on the part of the employees and increased 
economy on the part of the employer, have certainly in the 
mining industry maintained a daily output equal to that which 
existed before the eight-hour day was introduced. This is shown 
in the following table, compiled from the reports of the United 
States Geological Survey and the Illinois Commissioners of 
Labor, showing the production of coal for the six years from 
1895 to 1900: 

Bituminous- Coal Mining 
Country at large 







Average 


Average 


Total 


Average 


Per Cent 


Year 


Output 


Days 


Number 


Days 


Output 


MINED BY 






ACTIVE 


EMPLOYED 


WORKED 


PER Day 


Machines 




Short tons 








SJiort t07is 




1894 . . 


118,820,405 


171 


244,603 


41,827,113 


2.84 




1895 






135,118,193 


194 


239,962 


46,232,628 


2.90 




1896 






137,640,276 


192 


244,171 


46,808,8.32 


2.72 


19.17 


1897 






147,609,985 


196 


247,817 


48,572,132 


3.03 


16.19 


1898 






166,592,023 


211 


255,717 


53,956,287 


3.09 


20.39 


1899 






193,321,987 


234 


271,027 


63,420,318 


3.05 


23.00 


1900 






212,513,912 


234 


304,975 


71,364,150 


2.98 


25.15 



While the eight-hour day was not introduced universally in 
the bituminous mines in 1897, it applied to more than half of 
the output of the entire country. From this table it can be seen 
that during the two years 1895 and 1896, under the ten-hour 



SOME ASPECTS OF THE LAIJOR PKOIU.EM 649 

system, the average output per workingman per clay was 2.9 
and 2.72 tons; while in 1897, during the latter three months 
of which the eight-hour day prevailed, the average output per 
man was 3.03 tons per day ; and for 1898, 1899, and 1900, three 
years of the eight-hour day in the majority of the coal mines, 
the average output ranged from 2.98 to 3.09 tons. Each year 
of the eight-hour day shows for the country as a whole a larger 
output per day for each workman than the highest output of 
the ten-hour day. The table also shows the increase in the use 
of machinery already referred to. 



Advantages of Sliorter Working Day 

On the side of the working population there can be no 
question respecting the desirability of fewer hours, from every 
standpoint. They gain not only in health, but also in intelli- 
gence, morality, temperance, and preparation for citizenship. 
Even in those cases where machinery has not increased the 
intensity of exertion, a long workday with the machine, especially 
where work is greatly specializ.ed, in many cases reduces the 
grade of intelligence. The old hand-work shops were schools 
of debate and discussion, and they are so at the present time 
where they survive in country districts ; but the factor}- imposes 
silence and discipline for all except the highest. Long work- 
da3-s under such conditions tend to inertia and dissipation when 
the day's work is done. Lessening of hours leaves more oppor- 
tunity and more vigor for the betterment of character, the 
improvement of the home, and for studying the problems of 
citizenship. For these reasons the short workday for w'orking 
people brings an advantage to the entire community. 

Of course, hours might possibly be conceived to l)e reduced 
to the point where the increased cost of production would over- 
balance these gains. If it were a question of reducing hours 
to absurdly low limits, nothing could be said in favor of the 
movement ; but where — as is actually the case — the goal set 
up by the working people is the eight-hour day, and there is no 



650 SELECTED READINGS IN ECONOMICS 

proposition of any weight for a five-or a six-hour day, the argu- 
ments for reduction need no qualification from the standpoint 
of the workers and little from that of employers. 

Furthermore,- a reduction of hours is not accompanied by a 
permanent reduction in the daily rates of pay. Doubtless it is 
good policy for labor organizations, in demanding a reduction 
of hours, to concede a temporary reduction in the rate of pay 
per day, which might be consistent with an increase in the rate 
per hour. The granite cutters adopted this plan, and when 
their hours were reduced from ten to nine they accepted a drop 
of twenty-five cents a day in wages. One year later they 
regained the wages of the ten-hour day. Again they dropped 
twenty-five cents in order to get the eight-hour day, and in 
another year they regained the twenty-five cents. A reduction 
of hours is the most substantial and permanent gain which 
labor can secure. In times of depression employers are often 
forced to' reduce wages, but very seldom do they, under such 
circumstances, increase the hours of labor. The temptation to 
increase hours comes in times of prosperity and business activity, 
when the employer sees opportunity for increasing his output 
and profits by means of overtime. This distinction is of great 
importance. The demand for increased hours comes at a time 
when labor is strongest to resist, and the demand for lower 
wages comes at a time when labor is weakest. A gain in wages 
can readily be offset by secret agreements and evasions, where 
individual workmen agree to work below the scale ; but a reduc- 
tion of hours is an open and visible gain, and there can be no 
secret evasion. Having once secured the shorter working day, 
the question of wages can be adjusted from time to time accord- 
ing to the stress of the market. 

Respecting the proposed extension of the eight-hour work- 
day to all manufacturing and mining industries, the experience 
of the Australasian colonies indicates that it is practicable, pro- 
vided it be gradually brought about. True, as regards the re- 
sulting cost of production, the reduction would have different 
effects in different occupations. In some cases the eight-hour 
day would at first increase the cost, while in others there would 



SOME ASPECTS OF THE LABOR PKOI'.LE.M 051 

be no increase. From the immediate standpoint of the eniph)yer 
it might seem that the hours should not be reduced in those 
occupations where cost would be increased, but that a concession 
of fewer hours might be made to the workmen in those occupa- 
tions where cost would not be increased. A discrimination of 
this kind would require a minute investigation of all industries, 
and in the end would not be conclusive, since the question of 
reduction of hours usually turns not on an inquiry into costs, 
but upon the economic strength of the labor interest or upon 
the health requirements of the employees. In all cases where 
reductions have been brought about there have been strenuous 
objections and alarming predictions, but after a very brief period 
of trial these objections have disappeared, except where lack of 
uniformity remains a ground of complaint ; and employer and 
employee with this exception alike have agreed upon the advan- 
tages of the change. On the other hand, there is a reason for 
avoiding a hard and fast staiidaid of hours for all trades in the 
fact that the phjsieal and mental exhaustion and the hygienic 
surroundings are different. The more injurious occupations call 
for a greater reduction in the number of hours than the less 
injurious ones, and this, as will be shown later, is the true basis 
on which the reduction of hours l)y legislation should be based. 



Shorter Workdays through Labor Organization 

In the absence of legislation the only effective means of 
securing a reduction of hours is tlirough lal)()r organization. 
This is of course the method b}^ which the most significant and 
important reductions in recent years in the United States have 
been secured. The concentration of effort on this point by the 
American Federation of Labor for the past fifteen years has 
already accomplislied notable results. The general effort, be- 
ginning in 1886, is believed to have reduced the day's labor of 
the working people of the United States by fully one hour. 
Where the liours had been twelve they were reduced to eleven ; 
where they had l)een eleven they were reduced to ten. 



652 SELECTED READINGS IN ECONOMICS 

The cigar makers were the first organization to secure an 
extensive adoption of the eight-hour day, and their success 
dated from May, 1886. A special reason for the strength of 
the union in this trade lies in the possession of the cigar maker's 
label, which has made it possible for union men to secure higher 
prices for their products than those secured by non-label work- 
ers. It is not maintained by the representatives of this union 
that the shorter workday in their craft is followed by a corre- 
sponding increase in the output per hour, and indeed the reduc- 
tion in hours is advocated mainly as a means of distributing 
employment more regularly and of absorbing the unemployed. 

In the building trades the great majority of the workmen in 
the local trades councils have secured the eight-hour day. There 
does not seem to be anj' reason in the nature of their work why 
they should prefer fewer hours than prevail in other trades. 
Theirs is a seasonal trade, and it would seem that the motive 
to work excessively in the busy season, in order to earn money 
enough to tide them over the winter's idleness, would be as 
strong as it is in the case of the longshoremen and the clothing 
makers. Neither is their work as trying as indoor work ; yet 
the members of their organizations who work in shops do not, 
as a rule, have the eight-hour day. The explanation in general 
is found in the strength of the labor organizations and the large 
numbers of contractors, often of relatively small economic power, 
for whom they work. In the case of indoor work the factories 
are in the hands of corporations, and it is more difficult to 
secure reduction of hours in dealing with the large manufac- 
turers than with the small employers. 

The hours of window-glass blowers are forty a week in the 
blowing department, although they are more in other depart- 
ments. The reasons advanced by the representative of the union 
for this short time is that the men produce enough in that time 
for a fair week's work. Window-glass cutters have a limit on 
the amount of work a man shall be permitted to do in a day, 
but as they are paid by the piece and are permitted to quit work 
as soon as they have completed their task, the hours vary widely, 
averaging not more than ten. 



SOME ASPECTS OF THE LAJIUU TKOiiLEM G5o 

The brewery business is one requiring continuous attention, 
and it was formerly believed that the eight^hour day was imprac- 
ticable. The men were working twelve hours in two shifts, but 
through the strength of their organization the hours have been re- 
duced to eight in three shifts, without any injury to the industry. 

The workdays of longshoremen prior to their organization, 
along the Great l-akes, were irregular and long on the average. 
They often worked as long as twenty-four and sometimes thirty- 
six hours at a stretch. Through the influence of their associa- 
tion this S3'stem has been wiped out and the hours of labor have 
been materially reduced. On the Lakes the. men work from ten 
to twelve hours, on the coast rather longer. The season is a short 
one, not over eight months at the most, and with the keen compe- 
tition of the railroads that run parallel with the Lakes it is essen- 
tial that vessels be given the best dispatch possible. If the work 
were more steady, the men would favor a still shorter workday. 
L'nder the conditions existing, however, the eight-hour day is not 
possible, or even thought of by the members of the association. 

The reports of the New York Bureau of Labor statistics since 
1891 have contained complete investigations of the hours of 
labor of organized workmen in that state. The following sum- 
mary prepared by the commission shows the changes in the 
hours which have taken place : 

The number of employees fluctuated between 186,003 in 1891 and 407,235 
in 1899, — a growth partly natural and partly due to an increasing number 
of establishments reporting. The results may be summarized as follows : 



Proportion of Employees working the Specified Hours per Day, 

1891 to 1899 





1891 


1892 


1893 


1894 


1896 


1896 


1897 


1898 


1899 


8 hours or le.'^s . . 

9 hours 

10 hours 

Over 10 hours . . 


Per 

cent 

9.3 
16.6 
72.2 

1.9 


Per 

cent 

9.0 
16.5 
72.5 

2.0 


Per 

cent 

10.7 

18.1 

69.2 

2.0 


Per 
cent 

14.4 

17.8 

65.1 

2.0 


Per 
cent 

11.9 

17.9 

67.9 

2.3 


Per 
cent 

9.4 
20.3 
66.6 

3.7 


Per 

cent 

9.7 
20.9 
65.5 

3.9 


Per 
cent 

8.2 
22.2 
65.8 

3.8 


Per 

cent 

8.1 
22.1 
66.1 

3.7 


Total .... 


100.0 


100.0 ! 100.0 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 



654 SELECTED READINGS IN ECONOMICS 

The movement of the Federation of Labor for fewer hours 
was in abeyance for a number of years, but within the last three 
or four years has been vigorously renewed, and within that 
period such industries as those of the machinists and the miners 
have secured quite generally the nine-hour or the eight-hour 
day. There is no effort of labor organizations more necessary, 
nor one in which they have more generous sympathy from the 
public, than this effort to secure a reduction of hours. Their 
demand for a shorter workday is peculiarly strong where, as is 
generally the case at the present time, they forego their demand 
for restrictions on output, and permit the employer to have a 
free hand in the management of his business. Reduction of 
hours is the concession to which they are entitled in return 
for the increased exertion which they concede in removing all 
restrictions on output and machinery. 

Legislation governing Hours of Labor 

While the efforts of labor organizations in behalf of reasonable 
reduction of hours are in general to be commended, it is plain 
that they cannot be expected to reach all classes of labor, nor in- 
deed those most in need of protection in this regard. It has been 
estimated that labor unions include only 10 or 15 per cent of the 
wage-earning population. They do not include, to an}'- great ex- 
tent, women and children, who in 1890 constituted 20 per cent 
of the employees in manufactures, and who, on account of physi- 
cal weakness or immature years, stand in greatest need of reason- 
able hours. Even those organizations which are able to secure 
the shorter working day are handicapped in competition with 
establishments where non-union labor prevails. In an industry 
whose products are sold throughout the country, other conditions 
being also equal, uniform hours and wages are essential in order 
to place manufacturers on the same competitive level. The 
stability of the eight-hour day among the mine workers depends 
on the extensive organization of labor in that industry. The 
chief reason why the building trades have been able so exten- 
sively to secure the eight-hour day is that they are not subjected 



SOiME ASPECTS OF THE LAl'.OJJ riiOl'.LE.M 055 

to interstate competition, and are able, therefore, to reduce the 
hours in one locality without driving trade to other localities. 
These favorable conditions are absent from the great majority of 
the working population. 

Legislative regulation of the hours of labor, from any point of 
view, must be considered as supplementary to regulation by 
private contract and labor organization, where these methods 
fail and where there is evident reason for the reduction. In 
England and in America it has generally been held that legis- 
lation reducing the number of working hours should apply only 
to women and minors, and not to men. The latter have been 
held to be better able to care for themselves and to secure, through 
organization or otherwise, the improved conditions which they 
demand. But women and children have been considered weaker 
in bargaining and more in need of legislative protection. There 
is a tendency in both countries, however, to depart from this 
view and to legislate for men as well as women in the regulation 
of hours. While such legislation has not as yet been actually 
enacted in England, it has been adopted in Utah and Wyoming 
in the case of miners and smelters. With these two excep- 
tions the legislation of American states, reducing the hours of 
labor, applies only to women and minore. Where men work in 
the same factories they generally get the advantage of the 
shorter workday of the women and children, although this is 
not always so. 

The problem of legislative regulation turns upon three 
(questions : first, practicability ; second, constitutionality ; third, 
uniformity. 

]. Practicability. Legislation respecting hours of labor stands 
upon an entirely different footing from legislation respecting 
wages. It is practically impossible to devise any legislation 
which will effectively maintain a minimum rate of wages for any 
occupation, or for the countiy at large, even should legislative 
interference of this kind seem advisable. Secret evasion would 
quickly nullify such a law. But legislation setting a maxi- 
mum to the number of hours of employment can be so framed 
and administered as to prevent evasion. It must be observed. 



656 SELECTED READINGS IN ECONOMICS 

however, that reliance cannot be placed upon prosecution of the 
employer by the employee. The latter is in a dependent posi- 
tion, and the implied threat of discharge is too heavy a penalty 
to pay for a doubtful victory in a legal prosecution. Such a 
prosecution is possible only where the employee is backed by a 
strong labor organization ; and a labor organization strong enough 
to prosecute an employer under state laws is strong enough to 
secure its demands without the state law. Legislation is needed 
only where organization fails. This being so, legislation con- 
cerning hours requires the creation of a strong force of factory 
inspectors. The factory inspector is the public prosecutor of 
violations of factory laws. The simple provision existing in 
the laws of Massachusetts, New York, and other states, requir- 
ing that the employer shall post in his factory the hours for 
beginning and quitting work and the interval for the noonday 
meal, and providing penalties where this notice is not posted, 
makes it possible for the inspector to discover by his own inspec- 
tion whether the shop is working overtime or not. With this 
simple provision a factory working outside the posted hours is 
prima facie violating the law, and it is not necessary that the 
factory inspector should call in the employees as witnesses and 
subject them to the danger of discharge. The inspector, like a 
police officer, becomes his own witness, with the most conclusive 
of testimony. Where the legislation respecting hours is evaded, 
as it undoubtedly is in some cases in New York and other states, 
it will be found that the defect lies chiefly in the failure to en- 
force the provision requiring the posting of hours and in the 
necessity of summoning the employees as witnesses. Sometimes 
this failure is excused on the ground that the requirement is a 
mere technicality, and that it would be a petty persecution on the 
part of the inspector to prosecute for every trifling detail ; but in 
the enforcement of a law of this kind this particular technicality 
is all important ; and if it is intended to enforce the law at all, 
the posting of the hours is an essential condition of success. 

In some occupations, like the manufacture of clothing and 
notions, it is often possible to evade the short-hour legislation 
by requiring employees to take work home at night, and where 



SOME ASPECTS OF THE LAKOK PUOBJ.K.M (')57 

they are not organized they are afraid to refuse. To meet this 
evasion tlie provisions in the law of Massachusetts and other 
states requiring all home workers to have a license, and requir- 
ing also that the employer furnish to the factory inspector a list 
of all his home workers, is the most effective device yet enacted 
into law. The inspector refuses to grant licenses for home work 
to those who work in the daytime in the factory, on the ground 
that they are already working the legal limit, and that to take 
work home at night would be an evasion of the law. Conse- 
quently the inspector, in case of violation, prosecutes the em- 
ployer, not directly for sending work home at night, but for 
furnishing work to unlicensed home workers. A prosecution on 
the former account would require testimony of the home worker, 
and would result inevitably in connivance and evasion. A prose- 
cution on the latter account requires only careful inspection on 
the part of the officer. 

The foregoing technical details are noticed to show the 
practicability of legislation for factories and mines regarding 
hours of labor. It does not follow that such legislation will be 
practicable for farm labor or for home workers. Its success de- 
pends upon the existence of establishments separate from the 
home. Indeed legislation of this character is justified mainly by 
the existence of the factory system, the increased intensity of 
exertion, the injuiy to the health of the worker, and the greater 
profitableness of labor which that system has introduced. 

2. ConstitutionaUt u . Legislation restiicting the hours of labor 
has been overthrown by the courts in many states on the ground 
of unconstitutionality ; and undoubtedly this is the main obstacle 
in the way of enacting such statutes. The ground on which 
these decisions are rendered is their interference with freedom 
of contract and with the free exercise of one's powers, or with 
the free acquisition of property. Such laws as have been sus- 
tained have been justified on the ground of the preeminence of 
the police power of the state ; but the proper extension of the 
police power is viewed differently by different courts. IJegard- 
ing the nature of the police power in itself there is no difference 
of opinion ; it is supreme wherever reasonably applicable, and 



658 SELECTED READINGS IN ECONOMICS 

may be invoked to restrict or limit the freedom of contract ; but 
as to its extent there are differences of legal opinion. It includes 
the protection of the health, safety, morals, and welfare of the 
public. These objects are indeed broad, and might apparently 
on their face justify many kinds of interference. The main 
point of difference in the decisions of the courts respecting the 
question of hours is whether the police power extends only to 
the protection of the public at large, or whether it can also l)e 
invoked to protect the individual against himself, as when he is 
prohibited from making a contract which is injurious to himself. 
If it can be shown plainly that the regulation in a particular 
case is necessary and reasonable for the protection of the com- 
munity, as for instance against contagious diseases, then the 
police power plainly includes the power of the legislature to 
prevent individuals from making such uses of their own property, 
or from making such contracts as would thus injure the com- 
munity. Many courts have held that the police power cannot 
be invoked to prohibit a person from taking industrial risks 
which imperil only himself and do not affect the community. 
This ruling, however, has not been applied in the case of the 
factory laws, which have been enacted by more than one half of 
the states, with the object of protecting employees from danger- 
ous machinery and unwholesome conditions of work. The lead- 
ing decision on this point ^ holds that, while it is true that in 
the absence of a contract to the contrary the employee assumes 
the risk of his occupation, yet the legislature is not thereby 
restricted from lessening these risks through police regulations. 
The court denied the contention that 

Neither the public welfare nor the public health is involved, inasmuch 
as the protection thought to be afforded is limited to the individual em- 
ployee, who, by his contract of employment, signifies a willingness to use 
the machine in its dangerous condition, and therefore cannot be heard, to 
complain. 

The court continues : 

A man may contract to use such machinery or to perform dangerous 
services, and have no remedy for injury; but we ai-e not aware -that the 

1 People V. Smith, 66 N. W. Rep. (Mich.), p. 382. 



SOME ASPECTS OF THE LAI'.OII PROlU.E^r 059 

l»nlice power is limited liy sucli contract. As between the parties themselves 
a contract may cut off legal redress for injuries sustained ; but we are not 
satisfied that the authority of the State is limited to the protection of those 
who do not sustain contract relations with eacli other. 

The court also intimates tliat in assuming these risks the em- 
ph>3ee is not altogether free, and his contract therefore does not 
come under those provisions which protect the freedom of con- 
tract. On this point it says: 

Laws of this class embrace provisions for the safety and welfare of tho.se 
whom necessity may compel to submit to existing conditions involving 
hazards which they would otherwise be iniwilling to assume. 

The Supreme Court of the United States in the Utah mining 
case, where the legislature restricted the houi-s of labor to tight, 
takes similar ground, and sets forth the inequality of bargaining 
power between the employer and employee as a justification of 
legislation protecting employees, even though they be adult 
males. It says : ^ 

The legislature has also recognized the fact, which the experience of 
legislatures in many states has corroborated, that the proprietors of the.se 
establishments and their operatives do not stand upon an equality, and that 
their interests are, to a certain extent, conflicting. The former naturally 
desire to obtain as much labor as possible from their employees, while the 
latter are often induced, by the fear of discharge, to conform to regulations 
which their judgment, fairly exerci.sed, would jironounce to be detrimental 
to their health or strength. In other words, the proprietors lay down the 
rules and the laborers are practically constrained to obey them. In such 
cases self-interest is often an un.safe guide, and the legislature may properly 
impose its authority. It may not be improper to suggest in this connection 
that although the ]irosecution in this case was against the employer of labor, 
who apparently, under the statute, is the only one liable, his defen.se is not 
that his right to contract has been infringed upon, but that the act works 
a peculiar hardship to his employees, whose right to labor as long as they 
]>lease is alleged to be thereby violated. The argument would certainly 
come with better grace and cogency from the latter class. But the fact that 
both parties are of full age and competent to contract does not necessarily 
deprive the State of the jiower to interfere where the parties do not stand 
upon an etiuality, or where the pid)lic health demands that one party to 
the contract shall be protected against himself. The State still retains an 

1 Uolden v. 7/an/y. 18 Sup. Ct. Rep., p. :}88. 



660 SELECTED READINGS IN ECONOMICS 

interest in his welfare, however reckless he may be. The whole is no greater 
than the sum of all the parts, and when the individual health, safety, and 
welfare are sacrificed or neglected the State must suffer. 

It will be noticed in the foregoing decision that the court 
sustained that view of short-hour legislation which holds that in 
protecting the employee the state is protecting the community 
at large ; and that the police power can be invoked, not merely 
to prevent an individual from using his freedom in such a way 
as to injure others, but also to prevent him from using his 
alleged freedom in such a way as to injure himself. 

Prior to the enactment of the Utah legislation above referred 
to, the enactments of different states extended only to the pro- 
tection of minors and women. The protection of minors is 
plainly justified by the lack of full legal rights and their inability 
legally to enter into any contract whatever. In the case of 
adult women, the police power is invoked, not on the ground 
that they do not enjoy freedom of contract, but on the ground 
that the state is interested directly in their health. It was upon 
this ground that the earliest American law regulating the hours 
of women, namely, the sixty-hour law of Massachusetts, enacted 
in 1874, was sustained. The court decided ^ that the legislature 
had power to provide that "in an employment which the legis- 
lature has evidently deemed to some extent injurious to health, 
no person shall be engaged in labor more than ten hours a day, 
or sixty hours a week." Only one other ruling has been made 
on the subject, although fourteen other states restrict the hours 
of adult women in factories and the legislation has not been 
challenged. An opposite result was reached by the court in 
Illinois, which declared unconstitutional the eight-hour law 
applying to adult women in factories, on the ground that they 
were fully as competent as men to make their own contracts for 
work in any lawful occupation.^ 

The decision of the Supreme Court of the United States on 
the Utah mining law extending the principle of legislative pro- 
tection to workingmen as well as women is so important for the 

1 120 Mass., 384. 2 Ritchie v. People, 155 111., 98. 



SOME ASPECTS OF THE LAP.OR PKOr.LEM 001 

guidance of legislatures and courts in enactments of this kind 
tliat the grounds of the decision should be clearly understood. 
The Supreme Court holds in substance that a state law reason- 
ably calculated to protect employees in dangerous or unwhole- 
some occupations, by means of a reduction of the hours during 
which they are permitted to work under such conditions, is not 
in conflict with the fourteenth amendment of the Constitution 
of the United States, for the reason that it neither abridges the 
privileges or immunities of the citizens of the United States, nor 
deprives either the employer or the employee of his property 
without due process of law, nor denies to them the equal pro- 
tection of the laws. The court noticed that the police power of 
the states has been greatly extended during the present century, 
on account of the enormous increase in the number of occupa- 
tions which are dano^erous or so far detrimental to health as to 
demand special precautions for the well-being and protection of 
employees or the safety of adjacent property, and that while 
" the police power cannot be put forward as an excuse for 
unjust or oppressive legislation, it may lawfully be resorted to 
for the purpose of preserving the public health and safety or 
morals, or the abatement of public nuisances ; and a large dis- 
cretion is necessarily vested in the legislature to determine not 
only what the interests of the public require, but what measures 
are necessary for the protection of such interests." 

The court concuned in the following observation of the 
supreme court of Utah: 

Poisonous gases, dust, and impalpable substances arise and float in the 
air in stamp mills, smelters, and other works in which ores containing 
metals, combined with arsenic or other poisonous elements or agencies, are 
treated, reduced, and refined, and there can be no doubt that prolonged 
effort, day after day, subject to such conditions and agencies, will produce 
morbid, noxious, and often deadly effects in the human system. Some 
organisms and systems will resist and endure such conditions and efi'ects 
longer than others. It may be said that labor in such conditions must be 
{H-rformed. (Jranting that, the period of labor each day should be of 
reasonable length. Twelve hours per day would be less injurious than 14, 
10 than P2, 8 than 10. The legislature has named 8. Such a period was 
deemed reasonable. 



662 SELECTED EEADINGS IN ECONOMICS 

Respecting the control which the fourteenth amendment to the 
Constitution of the United States imposes upon state legislation, 
the Supreme Court affirms that the science of law is to a certain 
extent a progressive one, and that the Constitution of the United 
States, " which is necessarily and to a large extent inflexible, and 
exceedingly difficult of amendment, should not be so construed as 
to deprive the states of the power to so amend their laws to make 
them conform to the wishes of the citizens, as they may deem best 
for the public welfare, without bringing them into conflict with 
the supreme law of the land " ; and this need of revision of laws 
grows out of new conditions of society as they arise, and " partic- 
ularly the new relations between employers and employees." 

This decision of the Supreme Court of the United States makes 
it plain that state legislatures are competent, so far as the Consti- 
tution of the United States goes, to regulate the hours of labor 
in any occupation, or for any class of employees, where it can be 
shown that the occupation is injurious to health, and that the 
proposed reduction of hours is not excessive and unreasonable. 

At the same time, it must be noted that state constitutions 
are supreme over state legislatures, and that these constitutions, 
under the decisions of the several state courts, differ widely in 
the restrictions which they place on the legislative body. The 
supreme court of Colorado in 1899, ^ in passing upon a Colorado 
statute identical with that of Utah, held that the Utah consti- 
tution contained a mandatory provision, namely, that "the 
legislature shall pass laws to provide for the health and safety 
of employees in factories, smelters, and mines," and seemed to 
intimate tliat it would require such a clause in the Colorado 
constitution to authorize a law limiting the freedom of contract 
of such employees. It held that, notwithstanding the decision 
of the Supreme Court of the United States, the police power of 
the legislature of Colorado does not extend to the protection of 
an employee against himself in making a contract for employ- 
ment. It is to be noted, however, that neither the Utah court 
nor the Supreme Court of the United States based its decisions 
on the mandatory clause of the Utah constitution, but upon the 
1 7(1 re Morgan, 40 Pac. Eep., 756. 



SOME ASPECTS OF THE I.Al'.OK PROBLEM GGo 

police power of the state. ^ The conclusion to be drawn is that, 
so far as the Constitution of the United States is concerned, 
state legislatures are competent to reduce by law the hours of 
labor in dangerous or unwholesome occupations, and that the 
constitutionality of such legislation under the several state con- 
stitutions will naturally be decided differently ; but that in any 
case the people of each state have the remedy in their own 
liands, through a pioper amendment of their constitution, simi- 
lar to that of Utah. 

The basis of these decisions is not the need of the working 
people for fewer hours in order that they may have more leisure 
in general, but simply the injury imposed by the occupation 
upon their healtli. This of course is a broad position and is 
indefinite in extent. Lcfjislation regulatino- the hours of women 
applies to all factories, and often in practice makes it necessary 
for emploj-ers to fix the same hours for men in the same estab- 
lishments. While it is doubtless true that in many occupations 
excessive hours are injurious to the health of men as well as 
women, conditions differ greatly in different industries, or even 
in different establishments in the same industry. Legislation, 
therefore, upon this subject cannot be general, but must be based 
upon accurate investigation of the conditions in the several 
industries. The Industrial Commission has taken testimony 
regarding the evil effects of long woikdays in various trades, 
but has not been able to follow this line of inquiry to the extent 
that its importance requires. A field investigation of injuri- 
ous occupations might properly be undertaken by the United 
States Department of Labor, and for that purpose the Depart- 
ment should be provided with adequate funds. The investigation 
should cover the leading industries of the country, and should in- 
clude the employment of women, children, and men, the number 
of hours worked in different parts of the country and in foreign 
countries. The Department should be able to employ such medi- 
cal and technical experts and to make such medical and chemical 
tests as the nature of the inquiry suggests. Such an investigation 
might determine the ages of employees in such establishments, 
1 40 Pac. Rep., 701 ; 18 Sup. Ct. Rep., 383. 



664 SELECTED READINGS IN ECONOMICS 

the length of time they had worked at the trade, the number of 
days lost on account of sickness, and the character of the sick- 
ness. An investigation of this kind, conducted by expert authori- 
ties, would prove the most valuable contribution v/hich could 
be made to the scientific and just action of the several states in 
the important matter of regulating the hours of labor. 

In line with the preceding observations it may be noted that 
in Great Britain the factory and workshop act of 1901 author- 
izes the secretary of state, when he is satisfied upon investigation 
that any process or mechanical arrangement is dangerous, to 
draw up a draft of regulations prohibiting or limiting the em- 
ployment of persons and prohibiting or controlling the use of 
any material or process. The law applies to factories, workshops, 
and tenement workshops. 

3. Uniformity. The serious defect in legislation regulating 
the hours of labor in factories is found in the lack of uniformity 
in the different states. Massachusetts has established the 58- 
hour week for women and children in factories. The adjoining 
state of New York places the limit at 60 hours ; New Jersey at 
55 hours ; Pennsylvania at 60 hours ; Wisconsin, 48 hours, but 
permitting contracts for overtime ; South Carolina and Georgia, 
^^ hours ; others at 60 hours a week. There are twenty-two 
states that have no restrictions for adult women, eighteen that 
have no restrictions for women under twenty-one, and seventeen 
that have no restrictions on male minors. Utah and Wyoming 
are the only states that limit the hours of men, and this applies 
only to workers in smelters and underground mines.^ 

While it is doubtless true that, within limits, the fewer hours 
of one state do not place that state at a disadvantage, owing 
to the greater energy which fewer hours make possible, yet a 
further reduction by law from the 58 hours of Massachusetts, 
or the 55 hours of New Jersey to, say, 48 hours, as is the case 
in Australia, seems exceedingly difficult to bring about as long 
as other states retain a maximum as high as 60 or 66 hours, 
and still other states have no restrictions whatever. A greater 
degree of uniformity of legislation on this point is an urgent 
1 Report of the Industrial Commission, V, 50. 



.SOME ASPECTS OF THE LAliOll rilOr.I.E.M GGo 

requirement. After an experience of seventy years in England 
and nearly thirty years in Massachusetts, together with the 
more recent experience of twenty other American states, legis- 
lation reducing the houi"S of woman and minors in factories 
has justified itself as a proper action for any civilized state. It 
is true that local differences exist in the climate and other con- 
ditions, but these should not be considered decisive. Those 
states which are just now advancing to the position of manu- 
facturing connnunities might well learn from these examples the 
lesson that permanent industrial progress cannot be built upon 
the physical exhaustion of women and children, t^actory life 
brings incidentally new and depressing effects which those 
whose experience has been wholly agricultural do not appreciate. 
But the experience of states which have pushed their way from 
agricultural to manufacturing industries, and have found that 
their delay in protecting their factory employees has weakened 
the physical and moral strength of the new generation of work- 
ing people, would seem to be an experience which the citiKcns 
of new manufacturing states would hope to avoid. A reduction 
in hours has never lessened the working people's ability to 
compete in the markets of the world. States with shorter work- 
days actually manufacture their products at a lower cost than 
states with longer workdays. Several witnesses before the 
Industrial Commission, both manufacturers and employees, have 
urged a national law reducing the houis of women and children 
in factories to a uniform standard. There is evidence that the 
demand for such a law is growing in strength. But federal 
legislation, with the attendant force of federal factory inspectors, 
is objectionable. Otiier countries, even (iermany, with its 
federal form of government, have uniform factory laws covering 
all parts of tiie land ; but it has been the pride of the American 
Commonwealth that, except in great emergency, no state should 
be coerced to do that which is either for its own interest or for 
the interest of other states. This principle is sound, but it 
cannot be overlooked that those states which profit by their 
strategic position to hold tiieir sister states below the level of 
humane self-protection demanded by modern factory conditions 



G66 SELECTED READINGS IN ECONOMICS 

are storing up against themselves feelings of resentment and 
retaliation. It is certainly practicable for any state to bring its 
hours of labor for women and children in factories down to the 
standard of 55, set by New Jersey. This standard is near that 
of our principle competitor, Great Britain. This, at least for the 
present, should be the standard adopted on its own initiative by 
every state that enters the ranks of factory production. 

Federal Legislation 

While in 'manufactures and mining the regulation of hours 
belongs to the several states, yet in transportation the inter- 
state character of the industry brings the subject under the 
powers of Congress. The policy of congressional action de- 
pends upon the need of protecting the traveling public and 
freight traffic, and the inability of certain classes of employees 
to organize for their own protection. On account of the nature 
of train service the hours of railroad employees are necessarily 
irregular. A certain distance must be covered before the train 
crew can be released, and the time required may be short, or, 
un,der exceptional circumstances, may be exceedingly long. 
There is, however, a very general tendency of railroad manage- 
ment to bring the hours of trainmen into reasonable limits, and 
the ten-hour day is the ideal standard established by agreement 
for such service. The principal motive actuating the manage- 
ment is the necessity that the trainmen should be wide-awake, 
and this acts as a protection against unreasonable demands ; at 
the same time, prior to the organization of the railroad unions 
the workday was much longer than at present. Even now, in 
the case of the unorganized switchmen, telegraphers, trackmen, 
and station men, the hours are frequently twelve a clay, and, in 
some cases, from sunrise to sunset. During the summer, when 
days are long, trackmen work fourteen hours on many roads. 
In emergencies all of these employees are also required to re- 
main on duty much longer than twelve hours. 

While it is true that the trainmen are especially responsible 
for the safety of the traveling public, it is also true, as stated 



SO.ME ASPECTS OF THE LAIJOK PKUllLEM (HiT 

by the president of a leading railroad, that " of the twenty 
thousand names on our pay roll you could pick out very few 
who do not carry the lives of the passengers in their hands." 
Telegraph operators occupy a peculiarly responsible position in 
trafiie operations, and it is no unconunon thing for a coroner's 
jury to ascribe the cause of a railroad wreck to the negligence 
of a telegraph ojierator who had been on duty for an excessive 
number of liours. Railway trackmen are the poorest paid and 
hardest worked of all employees. They handle heavy material, 
such as cross-ties and steel rails, and even heavy cars. Pjotii on 
their own account and on account of the safety of the tiaveling 
public, the hours of labor of these unorganized classes of lail- 
way employees should be reduced to eight. 

The legislation of the several states alTecting the hours of 
employees limits such hours to ten or twelve, and in five states 
contracts for a longer time are invalid, and a company so con- 
tracting is liable to a penalty. The constitutionality of such 
statutes can now probably be sustained under the decision of 
the United States Supreme Court on the Utah mining law. 
Railroad labor, however, is undoubtedly covered by the inter- 
state powers of Congress, and a federal law regulating the 
hours of labor would be constitutional. The limitation of con- 
tinuous runs by engineers or continuous service by telegraph 
operators or switchmen without a period of sufficient rest, as 
well as other regulations affecting the surroundings and dangers 
of the employment are within the province of Congress. The 
Industrial Connnission has recommended that Congress enact a 
code covering all the conditions of employment of railroad labor 
throughout the United States. Such a code would have the 
advantage of simplifying the conditions throughout the country, 
and, by the force of example, would lead the states, it is hoped, 
to voluntarily adopt the code in cases where Congress cannot 
properly interfere. This the commission believes to be one of 
the most important efforts in the labor interest to which the 
attention of Congress can possibly be invited.^ 

1 In 1007 Congress passed an act limiting the lioiirs of railway labor. — Ed. 



CHAPTER XX 

SOCIALISM 

1. The Communist Manifesto^ 

I. Bourgeois ayid Proletarians^ 

The history of all hitherto existing society ^ is the history of 
class struggles. 

Freeman and slave, patrician and plebeian, lord and serf, 
gild master* and journeyman, in a word, oppressor and op- 
pressed, stood in constant opposition to one another, carried on 
an uninterrupted, now hidden, now open fight, a fight that each 
time ended either in a revolutionary reconstitution of society at 
large, or in the common ruin of the contending classes. 

1 By Karl Marx and Frederick Engels. Authorized English translation 
[Chicago, Charles H. Kerr and Company]. First published as the platform of 
the Communist League, an association of German workingmen, in 1848. It 
well sets forth the cardinal doctrines of modern socialism. Only Part I is repro- 
duced here, Part II, entitled "Proletarians and Communists," being omitted. 
— Ed. 

2 By bourgeoisie is meant the class of modern capitalists, owners of the 
means of social production and employers of wage labor ; by proletariat, the 
class of modern wage laborers who, having no means of production of their 
own, are reduced to selling their labor power in order to live. 

3 That is, all written history. In 1847 the prehistory of society, the social 
organization existing previous to recorded history, was all but unknown. Since 
then Haxthausen discovered common ownership. of land in Russia, Maurer 
proved it to be the social foundation from which all Teutonic races started in 
history, and by and by village communities were found to be, or to have been, 
the primitive form of society everywhere from India to Ireland. The inner or- 
ganization of this primitive communistic society was laid bare, in its typical 
form, by Morgan's crowning discovery of the true nature of the gens and its 
relation to the tribe. With the dissolution of these primeval communities 
society begins to be differentiated into separate and finally antagonistic classes. 
I have attempted to retrace this process of dissolution in " Der Ursprung der 
Familie, des Privateigenthums und des Staals," 2d edition [Stuttgart, 1886]. 

* Gild master, that is, a full member of a gild, a master within, not a head 
of, a gild. 

668 



SOCIALISM GOy 

In the earlier epochs of history we find almost everywhere a 
complicated arrangement of society into various orders, a mani- 
fold gradation of social rank. In ancient Rome we have patri- 
cians, knights, plebeians, slaves ; in the Middle Ages, feudal 
lords, vassals, gild masters, journeymen, ap})rentices, serfs ; in 
almost all of these classes, again, subordinate gradations. 

The modern bourgeois society that has sprouted from the 
ruins of feudal society has not done away with class antago- 
nisms. It has but established new classes, new conditions of 
oppression, new forms of struggle in place of the old ones. 

Our epoch, the epoch of the bourgeoisie, possesses, however, 
this distinctive feature ; it has simplified the class antagonisms. 
Society as a whole is more and more splitting up into two great 
hostile camps, into two great classes directly facing each other: 
Bourgeoisie and Proletaiiat. 

From the serfs of the Middle Ages sprang the chartered 
burghers of the earliest towns. From these burgesses the first 
elements of the bourgeoisie were developed. 

The discovery of America, the rounding of the Cape, opened 
up fresh ground for the rising bourgeoisie. The East Indian and 
Chinese markets, the colonization of America, trade with the 
colonies, the increase in the means of exchange and in com- 
modities generally, gave to commerce, to navigation, to in- 
dustry, an impulse never before known, and thereby, to the 
revolutionary element in the tottering feudal society, a rapid 
development. 

The feudal system of industry, under which industrial pro- 
duction was monopolized by close gilds, now no longer sufficed 
for the growing wants of the new markets. The manufacturing 
system took its place. The gild masters were pushed on one 
side by the manufacturing middle class ; division of labor 
between the different corporate gilds vanished in the face of 
division of labor in each single workshop. 

Meantime the markets kept ever growing, the demand, ever 
rising. Even manufacture no longer sufficed. Thereupon steam 
and machinery revolutionized industrial production. The place 
of manufacture was taken by the giant, Modern Industry, the 



670 SELECTED READINGS IN ECONOMICS 

place of the industrial middle class, by industrial millionaires, 
the leaders of whole industrial armies, the modern bourgeois. 

Modern Industry has established the world market for which 
the discovery of America paved the way. This market has 
given an immense development to commerce, to navigation, to 
communication by land. This development has, in its turn, 
reacted on the extension of industry ; and in proportion as 
industry, commerce, navigation, railways extended, in the same 
proportion the bourgeoisie developed, increased its capital, and 
pushed into the background every class handed down from the 
Middle Ages. 

We see, therefore, how the modern bourgeoisie is itself the 
product of a long course of development, of a series of revolu- 
tions in the modes of production and of exchange. 

Each step in the development of the bourgeoisie was accom- 
panied by a corresponding political advance of that class. An 
oppressed class under the sway of the feudal nobility, an armed 
and self-govei'ning association in the mediaeval commune,^ here 
independent urban republic (as in Italy and Germany), there 
taxable " third estate " of the monarchy (as in France), after- 
wards, in the period of manufacture proper, serving either the 
semi-feudal or the absolute monarchy as the counterpoise against 
the nobility, and, in fact, cornerstone of the great monarchies 
in general, the bourgeoisie has at last, since the establishment 
of modern industry and of the world market, conquered for itself 
in the modern representative state exclusive political sway. The 
executive of the modern state is but a committee for managing 
the common affairs of the whole bourgeoisie. 

The bourgeoisie, historically, has played a most revolutionary 
part. 

The bourgeoisie, wherever it has got the upper hand, has put 
an end to all feudal, patriarchal, idyllic relations. It has piti- 
lessly torn asunder the motley feudal ties that bound man to 

1 "Commune" was the name taken in France by the nascent towns even 
before they had conquered from their feudal lords and masters local self-gov- 
ernment and political rights as the "third estate." Generally speaking, for 
the economical development of the bourgeois, England is here taken as the 
typical country; for its political development, Erance. 



SOCIALISM fiTl 

his " natural superiors," and has left remaining no other nexus 
between man and man than naked self-interest, than callous 
" cash payment." It has drowned the most heavenly ecstasies 
of religious fervor, of chivalrous enthusiasm, of philistine senti- 
mentalism, in the icy water of egotistical calculation. It has 
resolved personal worth into exchange value, and in place of 
the numberless indefeasible chartered freedoms, has set up that 
single, unconscionable freedom, — free trade. In one word, for 
exploitation veiled by religious and political illusions it has 
substituted naked, shameless, direct, brutal exploitation. 

The bourgeoisie has stripped of its halo every occupation 
hitherto honored and looked up to with reverent awe. It has 
converted the physician, the lawyer, the priest, the poet, the 
man of science, into its paid wage laborers. 

The bourgeoisie has torn away from the family its senti- 
mental veil, and has reduced the family relation to a mere 
money relation. 

The bourgeoisie has disclosed how it came to pass that the 
brutal display of vigor in the Middle Ages, which reactionists 
so much admire, found its fitting complement in the most 
slothful indolence. It has been the first to show what man's 
activity can bring about. It has accomplished wonders far 
surpassing Egyptian pyramids, Roman aqueducts, and Gothic 
cathedrals ; it has conducted expeditions that put in the shade 
all former exoduses of nations and crusades. 

The bourgeoisie cannot exist without constantly revolution- 
izing the instruments of production, and thereby the relations 
of production, and with them the whole relations of society. 
Conservation of the old modes of production in unaltered form, 
was, on the contrary, the first condition of existence for all 
earlier industrial classes. Constant revolutionizing of produc- 
tion, uninterrupted disturbance of all social conditions, ever- 
lasting uncertainty and agitation, distinguish the bourgeois 
epoch from all earlier ones. All fixed, fast-frozen relations, 
with their train of ancient and venerable prejudices and opin- 
ions, are swept away, all new-formed ones become antiquated 
before they can ossify. All that is solid melts into air, all that 



672 SELECTED READINGS IN ECONOMICS 

is holy is profaned, and man is at last compelled to face with 
sober senses his real conditions of life, and his relations with 
his kind. 

The need of a constantly expanding market for its products 
chases the bourgeoisie over the whole surface of the globe. It 
must nestle everywhere, settle everywhere, establish connec- 
tions everywhere. 

The bourgeoisie has, through its exploitation of the world 
market, given a cosmopolitan character to production and con- 
sumption in every country. To the great chagrin of reaction- 
ists, it has drawn from under the feet of industry the national 
ground on which it stood. All old-established national indus- 
tries have been destroyed or are daily being destroyed. They 
are dislodged by new industries, whose introduction becomes a 
life and death question for all civilized nations, by industries 
that no longer work up indigenous raw material, but raw mate- 
rial drawn from the remotest zones ; industries whose products 
are consumed, not only at home, but in every quarter of the 
globe. In place of the old wants, satisfied by the productions 
of the country, we find new wants, requiring for their satisfac- 
tion the products of distant lands and climes. In place of the 
old local and national seclusion and self-sufficiency, we have 
intercourse in every direction, universal interdependence of 
nations. And as in material, so also in intellectual production. 
The intellectual creations of individual nations become com- 
mon property. National one-sidedness and narrow-mindedness 
become more and more impossible, and from the numerous 
national and local literatures there arises a world literature. 

The bourgeoisie, by the rapid improvement of all instruments 
of production, by the immensely facilitated means of commu- 
nication, draws all, even the most barbarian, nations into civili- 
zation. The cheap prices of its commodities are the heavy 
artillery with which it batters down all Chinese walls, with 
which it forces the barbarians' intensely obstinate hatred of 
foreigners to capitulate. It compels all nations on pain of ex- 
tinction to adopt the bourgeois mode of production ; it compels 
them to introduce what it calls civilization into their midst, 



sociALis^r 673 

i.e. to become bourgeois themselves. In a word, it creates a 
world after its own image. 

The bourgeoisie has subjected the country to the rule of the 
towns. It has created enormous cities, has greatly increased the 
urban population as compared with the rural, and has thus 
rescued a considerable part of the population from the idiocy of 
rural life. Just as it has made the country dependent on the 
towns, so it has made barbarian and semi-barbarian countries 
dependent on the civilized ones, nations of peasants on nations 
of bourgeois, the East on the West. 

The bourgeoisie keeps more and more doing away with the 
scattered state of the population, of the means of production, 
and of property. It has agglomerated population, centralized 
means of production, and has concentrated property in a few 
bands. The necessary consequence of this was political central- 
ization. Independent, or but loosely connected provinces, with 
separate interests, laws, governments, and systems of taxation, 
became lumped together in one nation, with one government, 
one code of laws, one national class interest, one frontier, and 
one customs tariff. 

The bourgeoisie, during its rule of scarce one hundred years, 
has created more massive and more colossal productive forces 
than have all preceding generations together. Subjection of 
nature's forces to man, machinery, application of chemistry to 
industry and agricultui-e, steam navigation, railways, electric 
telegraphs, clearing of whole continents for cultivation, canali- 
zation of rivers, whole po[)ulations conjured out of the ground, 
— what earlier century had even a presentiment that such pro- 
ductive forces slumbered in the lap of social labor? 

We see, then, tlie means of production and of exchange on 
whose foundation the bourgeoisie built itself up were gener- 
ated in feudal society. At a certain stage in the development 
of these means of production and of exchange, the conditions 
under which feudal society produced and exchanged, the feudal 
organization of agi'iculture and manufacturing industry, in one 
word, the feudal relations of property became no longer com- 
patible with the already developed productive forces ; they 



674 SELECTED READINGS IK ECONOMICS 

became so many fetters. They had to burst asunder ; they were 
burst asunder. 

Into their places stepped free competition, accompanied by a 
social and political constitution adapted to it, and by the eco- 
nomical and political sway of the bourgeois class. 

A similar movement is going on before our own eyes. Modern 
bourgeois society with its relations of production, of exchange, 
and of property, a society that has conjured up such gigantic 
means of production and of exchange, is like the sorcerer who is 
no longer able to control the powers of the nether world whom 
he has called up by his spells. For many a decade past the his- 
tory of industry and commerce is but the history of the revolt 
of modern productive forces against modern conditions of pro- 
duction, against the property relations that are the conditions for 
the existence of the boutgeoisie and of its rule. It is enough to 
mention the commercial crises that by their periodical return 
put on its trial, each time more threateningly, the existence of 
the entire bourgeois society. In these crises a great part not 
only of the existing products, but also of the previously created 
productive forces, are periodically destroyed. In these crises 
there breaks out an epidemic that, in all earlier epochs, would 
have seemed an absurdity — the epidemic of overproduction. 
Society suddenly finds itself put back into a state of momentary 
barbarism ; it appears as if a famine, a universal war of devasta- 
tion had cut off the supply of every means of subsistence ; indus- 
try and commerce seem to be destroyed ; and why ? Because 
there is too much civilization, too much means of subsistence, 
too much industry, too much commerce. The productive forces 
at the disposal of society no longer tend to further the develop- 
ment of the conditions of bourgeois property ; on the contrary, 
they have become too powerful for these conditions by Avhich 
they are fettered, and so soon as they overcome these fetters, they 
bring disorder into the whole of bourgeois society, endanger the 
existence of bourgeois property. The conditions of bourgeois 
society are too narrow to comprise the wealth created by them. 
And how does the bourgeoisie get over these crises? On the 
one hand by enforced destruction of a mass of productive forces ; 



SOCIALISM 675 

on the other, by the conquest of new markets and by tlie more 
tliorough expU)itation of the old ones. That is to say, by paving 
the way for more extensive and more destructive crises, and by 
diminishing the means whereby crises are prevented. 

The weapons with which the bourgeoisie felled feudalism to 
the ground are now turned against the bourgeoisie itself. 

But not only has the bourgeoisie forged the weapons that 
bring death to itself ; it has also called into existence the men 
who are to wield tliose weapons, — the modern working class, 
the proletarians. 

In proportion as the bourgeoisie, i.e. capital, is developed, in 
the same proportion is the proletariat, the modern working class, 
developed, — a class of laborers who live onl}' so long as they 
lind work, and who find work onl}^ so long as their labor increases 
capital. These laborers, who must sell themselves piecemeal, 
are a commodity, like every other article of commerce, and are 
consequently exposed to all the vicissitudes of competition, to 
all the fluctuations of the market. 

Owing to the extensive use of machinery and to division of 
labor, the work of the proletarians has lost all individual charac- 
ter, and, consequently, all charm for the workman. He becomes 
an appendage of the machine, and it is only the most simple, 
most monotonous, and most easily acquired knack that is required 
of him. Hence the cost of production of a workman is restricted, 
almost entirely, to the means of subsistence that he requires for 
his maintenance and for the propagfition of his race. But the 
price of a commodity, and also of labor, is equal to its cost of 
production. In proportion, therefore, as the repulsiveness of the 
work increases, the wage decreases. Nay more, in proportion as 
the use of machinery and division of labor increases, in the same 
proportion the burden of toil also increases, whether by prolonga- 
tion of the working hours, by increase of the work enacted in a 
given time, or by increased speed of the machinery, etc. 

Modern industry has converted tlie little workshop of the 
patriarchal master into the great factory of the industrial capi- 
talist. Masses of laborers, crowded into the factory, are organ- 
ized like soldiers. As privates of the industrial ainiy they are 



676 SELECTED EEADINGS IN ECONOMICS 

placed under the command of a perfect hierarchy of officers and 
sergeants. Not only are they the slaves of the bourgeois class, 
and of the bourgeois state, they are daily and hourly enslaved 
by the machine, by the overlookei", and, above all, by the individ- 
ual bourgeois manufacturer himself. The more openly this 
despotism proclaims gain to be its end and aim, the more petty, 
the more hateful, and the more embittering it is. 

The less the skill and exertion or strength implied in manual 
labor, in other words, the more modern industry becomes devel- 
oped, the more is the labor of men superseded by that of women. 
Differences of age and sex have no longer any distinctive social 
validity for the working class. All are instruments of labor, 
more or less expensive to use, according to their age and sex. 

No sooner is the exploitation of the laborer by the manufacturer 
so far at an end that he receives his wages in cash, than he is set 
upon by the other portions of the bourgeoisie, — the landlord, 
the shopkeeper, the pawnbroker, etc. 

The lower strata of the middle class, — the small tradespeople, 
shopkeepers, and retired tradesmen generally, the handicrafts- 
men and peasants, — all these sink gradually into the proletariat, 
partly because their diminutive capital does not suffice for the 
scale on which modern industry is carried on, and is swamped 
in the competition with the large capitalists, partly because their 
specialized skill is rendered worthless by new methods of pro- 
duction. Thus the proletariat is recruited from all classes of the 
population. 

The proletariat goes through various stages of development. 
With its birth begins its struggle with the bourgeoisie. At first 
the contest is carried on by individual laborers, then by the 
workpeople of a factory, then by the operatives of one trade, in 
one locality, against the individual bourgeois who directly ex- 
ploits them. They direct their attacks not against the bourgeois 
conditions of production, but against the instruments of produc- 
tion themselves ; they destroy imported wares that compete with 
their labor, they smash to pieces machinery, they set factories 
ablaze, they seek to restore by force the vanished status of the 
workman of the Middle Ages. 



SOCIALISM 077 

At this stage the laborers still form an incoherent mass scat- 
tered over the whole country, and broken up by their mutual 
competition. If anywhere they unite to form more compact bodies, 
this is not yet the consequence of their own active union, but of 
the union of the bourgeoisie, which class, in order to attain its 
own political ends, is compelled to set the whole proletariat in 
motion, and is moreover yet, for a time, able to do so. At this 
stage, therefore, the proletarians do not fight their enemies, but 
the enemies of their enemies, the remnants of absolute monarchy, 
the landowners, the non-industrial bourgeois, the pett}^ bour- 
geoisie. Thus the whole historical movement is concentrated in 
the hands of the bourgeoisie ; every victory so obtained is a 
victor}- for the bourgeoisie. 

But with the development of industry the proletariat not only 
increases in number, — it becomes concentrated in greater masses, 
its strength grows, and it feels that strength more. The various 
interests and conditions of life within the ranks of the proletariat 
are more and more equalized, in proportion as machinery oblit- 
erates all distinctions of labor, and nearly everywhere reduces 
wages to the same low level. The growing competition among 
the bourgeois, and the resulting commercial crises, make tlie 
wages of the workers ever more fluctuating. The unceasing 
Miiprovement of machinery, ever more rapidly developing, makes 
their livelihood more and more precarious ; the collisions between 
individual workmen and individual bourgeois take more and 
more the character of collisions between two classes. Thereupon 
the w^orkers begin to form combinations (trade unions) against 
the bourgeois ; they club together in order to keep up the rate 
of wages ; they found permanent associations in order to make 
provision beforehand for these occasional revolts. Here and 
there the contest breaks out into riots. 

Now and then the workers are victorious, but only for a time. 
The real fruit of their battles lies, not in the immediate result, 
but in the ever-expanding union of the w^orkers. This union is 
helped on by the improved means of communication that are 
created by modern industry, and that place the workers of dif 
ferent localities in contact with one another. It was just this 



678 SELECTED EEADINGS IJsT ECONOMICS 

contact that was needed to centralize the numerous local strug- 
gles, all of the same character, into one national struggle between 
classes. But every class struggle is a political struggle. And 
that union, to attain which the burghers of the Middle Ages, 
with their miserable highways required centuries, the modern 
proletarians, thanks to railways, achieve in a few years. 

This organization of the proletarians into a class, and conse- 
quently into a political party, is continually being upset again 
by the competition between the workers themselves. But it ever 
rises up again, stronger, firmer, mightier. It compels legislative 
recognition of particular interests of the workers, by taking 
advantage of the divisions among the bourgeoisie itself. Thus 
the ten-hours' bill in England was carried. 

Altogether collisions between the classes of the old society 
further, in many ways, the course of development of the prole- 
tariat. The bourgeoisie finds itself involved in a constant battle. 
At first with the aristocracy ; later on, with those portions of 
the bourgeoisie itself whose interests have become antagonistic 
to the progress of industry ; at all times with the bourgeoisie 
of foreign countries. In all these battles it sees itself compelled 
to appeal to the proletariat, to ask for its help, and thus to drag 
it into the political arena. The bourgeoisie itself, therefore, 
supplies the proletariat with its own elements of political and 
general education ; in other words, it furnishes the proletariat 
with weapons for fighting the bourgeoisie. 

Further, as we have already seen, entire sections of the ruling 
classes are by the advance of industry precipitated into the 
proletariat, or are at least threatened in their conditions of 
existence. These also supply the proletariat with fresh elements 
of enlightenment and progress. 

Finally, in times when the class struggle nears the decisive 
hour, the process of dissolution going on within the ruling class, 
in fact, within the whole range of old society, assumes such a 
violent, glaring character, that a small section of the ruling 
class cuts itself adrift, and joins the revolutionary class, the 
class that holds the future in its hands. Just as, therefore, at 
an earlier period, a section of the nobility went over to the 



SOCIALISM 670 

bourgeoisie, so now a portion of the bourgeoisie goes over to the 
proletariat, and in particular, a portion of the bourgeois ideolo- 
gists, who have raised themselves to the level of comprehending 
theoretically the liistorical movements as a whole. 

Of all the classes that stand face to face with the bourgeoisie 
to-day, the proletariat alone is a really revolutionary class. The 
other classes decay and finally disappear in the face of modern 
industry ; the proletariat is its special and essential product. 

The lower middle class, the small manufacturer, the shop- 
keeper, the artisan, the peasant, all these fight against the bour- 
geoisie to save from extinction their existence as fractions of 
the middle class. They are therefore not revolutionary, but 
conservative. Nay more, they are reactionary, for they try to 
roll back the wheel of history. If by chance they are revolu- 
tionary, they are so only in view of their impending transfer 
into the proletariat ; they thus defend not their present, but 
their future interests ; they desert their own standpoint to place 
themselves at that of the proletariat. 

The " dangerous class," the social scum, that passively rotting 
mass thrown off by the lowest layers of old society, may, here 
and there, be swept into the movement by a proletarian revolu- 
tion ; its conditions of life, however, prepare it far moi-e for the 
part of a bribed tool of reactionary intrigue. 

In the conditions of the proletariat, those of old society at 
large are already virtually swamped. The proletarian is with- 
out property ; his relation to his wife and children lias no longer 
anything in connnon with the bourgeois family relations ; modern 
industrial labor, modern subjection to capital, the same in Eng- 
land as in France, in America as in Germany, has stiipped hini 
of every trace of national character. Law, morality, religion, 
are to him so many bourgeois prejudices behind which lurk in 
ambush just as many bourgeois interests. 

All the preceding classes that got the upper hand sought to 
fortify their already acquired status by subjecting society at 
large to their conditions of ajjpropriation. The proletarians 
cannot become masters of the productive forces of society except 
by abolishing their own previous mode of appropriation, and 



680 SELECTED READINGS IN ECONOMICS 

thereby also every other previous mode of appropriation. They 
have nothing of their own to secure and to fortify ; their mission 
is to destroy all previous securities for, and insurances of, in- 
dividual property. 

All previous historical movements were movements of minor- 
ities, or in the interest of minorities. The proletarian movement 
is the self-conscious, independent movement of the immense 
majority, in the interest of the immense majority. The proleta- 
riat, the lowest stratum of our present society, cannot stir, can- 
not raise itself up, without the whole superincumbent strata of 
official society being sprung into the air. 

Though not in substance, yet in form, the struggle of the 
proletariat with the bourgeoisie is at first a national struggle. 
The proletariat of each country must, of course, first of all 
settle matters with its own bourgeoisie. 

In depicting the most general phases of the development 
of the proletariat, we traced the more or less veiled civil war 
raging within existing society up to the point where that war 
breaks out into open revolution, and where the violent over- 
throw of the bourgeoisie lays the foundation for the sway of 
the proletariat. 

Hitherto every form of society has been based, as we have 
already seen, on the antagonism of oppressing and oppressed 
classes. But in order to oppress a class, certain conditions must 
be assured to it under which it can, at least, continue its slavish 
existence. The serf in the period of serfdom raised himself to 
membership in the commune, just as the petty bourgeois, under 
the yoke of feudal absolutism, managed to develop into a bour- 
geois. The modern laborer, on the contrary, instead of rising 
with the progress of industry, sinks deeper and deeper below 
the conditions of existence of his own class. He becomes a 
pauper, and pauperism develops more rapidly than population 
and wealth. And here it becomes evident that the bourgeoisie 
is unfit any longer to be the ruling class in society, and to 
impose its conditions of existence upon society as an overriding 
law. It is unfit to rule, because it is incompetent to assure an 
existence to its slave within his slavery, because it cannot help 



SOCIALISM 681 

lettiner him sink into such a state that it has to feed him, instead 
of being fed by him. Society can lio k)nger live under this 
bourgeoisie; in other words, its existence is no longer com- 
patible with society. 

The essential condition for the existence and for the sway of 
the bourgeois class is the formation and augmentation of capital ; 
the condition for capital is wage labor. Wage labor rests exclu- 
sively on competition between the laborers. The advance of 
industry, whose involuntary promoter is the bourgeoisie, replaces 
the isolation of the laborers due to competition by their invol- 
untary combination due to association. The development of 
modern industry, therefore, cuts from under its feet the very 
foundation on which the bourgeoisie produces and appropriates 
products. What the bourgeoisie therefore produces, above all, 
are its own gravediggers. Its fall and the victory of the prole- 
tariat are equally inevitable. 

2. Schaffle's Criticism of Socialism in its General Economic Aspects^ 

Social democracy as a party is the party of the proletariat. 
To their social inclinations and longings its whole teaching, its 
whole agitation, is expressly suited. Collective production is to 
fulfill the very desires of their hearts, it is to overthrow the 
capitalists, and rid the world of business crises and " wage 
slavery." Social democracy does not examine whether the evils 
of free unrestrained capitalist production may not possibly be 
cured without the entire abolition of private capital. Nor does 
social democracy think it worth while to consider whether, or 
to bring forward any proof that, either kind of production could 
conceivably exist entirely by itself ; nor whether, if this were 
possible, productivity might not severely suffer as a consequence, 
and thus the impoverishment of all directly ensue. Still less, 
whether there are not very important social interests, other 

^ Reprinted from Schaffle's Impossibility of Social Democracy. English 
translation by A. C. Movant [London: Swan, Sunnenschein, 1892]. Tliis work 
is in the form of letters addressed to a friend. The extract is from the second 
letter. — Ed. 



682 SELECTED EEADINGS IN ECONOMICS 

than industrial, which preclude the possibility of collective pro- 
duction. The profits of ca'pital, the instability of wages, wage 
slavery, — these must disappear ; therefore we must have a 
democratic collective production. The capitalistic system is 
incurably bad ; therefore the collectivist will insure universal 
earthly happiness. 

I, for my part, hope within the compass of a single letter to 
be able to bring you striking proof that social democracy in all 
its democracy smd in all its radicalism can never fulfill a single 
one of its glowing promises ; and further, that each and all of 
the preliminary points above mentioned, over which its fanatics 
rave so wildly, will, if rightly considered, afford evidence of the 
impossibility of democratic collectivism. 

It is, to begin with, a delusion to imagine that collective 
production could be organized and administered at all in a 
republic which from base to summit of the social pyramid was 
reared on democratic principles. It is no doubt a mistake to 
aver that collective production or even an entirely collective 
industrial system is altogether inconceivable, or must come to 
grief by reason of the overwhelming burden imposed on the 
central political power. I have myself shown that this is a 
mistaken view. But it is, on the other hand, quite certain that 
collective production, the universal panacea of the Social Demo- 
crats, would be wholly impossible unless the most carefully 
graduated authority were vested in the corporate governing 
organs, authority which should extend from the lowest to the 
highest and most central parts of the productive system. It 
would be impossible to allow that either from without inwards 
or from within outwards there should be constant overturning, 
changing, and all the confusion of new experiments. But if 
this is not to be, then a stable and self-sufficient central author- 
ity and a similarly constituted administrative system throughout 
the state will be absolutely necessary. And these two essen- 
tials could only for all time stand securely when based on very 
broad foundation stones of some powerfully moderating ele- 
ments. But then where would be your democratic republic from 
top to bottom and from center to circumference ? Where would 



SOCIALISM . 683 

be your freedom and equality? Where your security against 
misuse of power and against exploitation ? The fact is, collect- 
ive production on a democratic basis is impossible. . . . 

In the second place, collectivism eliminates both nature and 
private property as determining factors from the problem of the 
distribution of income. This it does by transferring the owner- 
sliip of the means of production entirely to the community, and 
welding all businesses of the same kind — however unequal 
the natural eflieiency of the instruments may be in the various 
sections — into one great " social " department of industry, 
worked on the principle of equal remuneration for equal contri- 
bution of labor time. This elimination of two out of the three 
factors in production might be practically feasible, perhaps even 
just, if collective production were organized on a sufficient basis 
of autl'ority. At least, experience shows that the state can 
without difficulty raise and maintain what is necessary for the 
supply of its various collective agencies, and can carry out a 
uniform scale of remuneration for a complicated network of 
officials. But under a purely democratic organization so delu- 
sively simple a method of elimination would be by no means 
practicable. A materialistic and greedy host of individuals, 
putf ed up by popular sovereignty, and fed with constant flattery, 
would not easil}^ submit to the sacrifices required by the im- 
mense savings necessary to multiplying the means of production. 
Still less would the members of such productive sections as are 
equipped with the instruments of production of highest natural 
efficiency be inclined to cast in the surplus product of their 
labor with the deficient production of others. Strife and con- 
fusion without end would be the result of attempting it. . . . 

In tlie thii'd place social democracy promises an impossibility 
in undertaking, without danger to the efficiency of production, 
to unite all branches of it, and in each branch all the separate 
firms and l)usiness companies, into one single body with uni- 
form labor credit and uniform estimation of labor time. Herein 
it goes upon the supposition that the whole tendency of pro- 
duction is towards business on a large scale with local self- 
complete branches on factory lines. Yet this is a most arbitrary 



684 SELECTED EEADINGS IN ECONOMICS 

assumption. Even in trade there will always remain over a mass 
of small scattered pursuits that entirely escape control, some sub- 
sidiary to the arts, some connected with personal services, some 
in the way of repairs and mending. In agriculture the large 
self-complete factory system is excluded by the nature of the 
case. The system of the latifundia becomes heavier and more 
intolerable as the cultivation of the soil becomes more intensive 
and more scientific. It may well be that in the agriculture of 
the future there will be more and more introduction of collect- 
ive administration for purposes of traction, the incoming and 
outgoing of produce, and for irrigation and draining, for the 
common use of machinery, and for operations of loading and 
dispatch. But farming on a large scale, such as is done on the 
Dalrymple Farm in the Red River district, or on Glenn Farm 
in California, is not possible as a universal system. If there 
are any who still think otherwise they would find it very profit- 
able to read the tenth census of the United States, for 1880. 
For here they will find it shown that, without exception, decade 
after decade, in proportion as the cultivation grew more inten- 
sive, the population more dense, and labor freer, the system of 
the latifundia was disused, peasant proprietorship increased, and 
the limits of the farm became less extensive. There also the 
circumstances are very clearly stated which preeminently indi- 
cate that agriculture, unlike other industries, tends in the 
direction of small or moderately large concerns. The denser 
population becomes, the more do medium and small-sized hold- 
ings — with the aid of subsidiary collective machinery — insure 
the necessary provision for the people. The facts brought for- 
ward by Bernhardi in his classical work, " On Large and Small 
Landed Estates," with respect to raw and net produce, do not 
fall before the trumpet blast of the social democratic millennium. 
And how in any case could it be possible without any authorita- 
tive organ of control or regulation to draw all the varied and 
scattered branches of agricultural labor into one simple homo- 
geneous system, and to reduce all labor to terms of average 
social labor time? . . . 



SOCIALISM 685 

Social democracy, in the fourth place, promises to the indus- 
trial proletariat a fabulous increase in the net result of national 
production, hence an increase of dividends of the national rev- 
enue, and a general rise of labor returns all round. This in- 
creased productivity of industry would perhaps be conceivable 
if a firm administration could be set over the collective produc- 
tion, and if it were also possible to inspire all the producers 
with the highest interest alike in diminishing tlie cost, and in 
increasing the productiveness of labor. But social democracy 
as such refuses to vest the necessary authority in the adminis- 
tration, and does not know how to introduce an adequate sys- 
tem of rewards and punishments for the group as a whole, and 
for the individuals in each productive group, however necessary 
a condition this may be of a really high level of production. 
For otherwise, of course, there would be no freedom and no 
equality. Therefore, on the side of productivity again, all these 
delusive representations as to the capacity and possibility of 
democratic collective production are groundless. Without giv- 
ing both every employer and every one employed the highest 
individual interest in the work, and involving them in profits 
or losses as the case may be, both ideal and material, it would 
be utterly impossible to attain even such a measure of produc- 
tivity for the national labor as the capitalistic system manages 
to extract from capital profit, even in the face of risk, and "with 
varying scales of remuneration. The introduction of even 
stronger and more effective guarantees of universal thrift and 
efficiency in a partially collective system may at first sight ap- 
pear to be not impossible, as I have shown at length in the 
third volume of my " Bau und Leben " (Structure and Life of 
the Social Organism). But this result is impossible if the only 
means of bringing it about is to be resolutely rejected and 
denied, namely, the free and ungrudging asvsignment of a larger 
proportion of material and ideal good to the real aristocracy of 
merit. Without a sufficiently strong and attractive reward for 
individual or corporate preeminence, without strongly deterrent 
drawbacks and compensatory obligations for bad and unpro- 
ductive Avork, a collective system of production is inconceivable, 



686 SELECTED READINGS IN ECONOMICS 

or at least any system that would even distantly approach in 
efficiency the capitalistic system of to-day. But democratic 
equality cannot tolerate such strong rewards and punishments. 
Even to reward the best with the honor of direction and com- 
mand is to run directly counter to this kind of democracy. The 
scale of remuneration in the 'existing civil and military systems 
would be among the very first things social democracy would 
overthrow, and rightly, according to its principles. So long 
as men are not incipient angels — and that will be for a good 
while yet — democratic collective production can never make 
good its promises, because it will not tolerate the methods of 
reward and punishment for the achievemeyits of iyidividuaU and of 
groups, which under its system would need to be specially and 
peculiarly strong. 

The fifth, and the most one-sided promise held out by indi- 
vidualism in the Eisenach Programme of 1869, namely, that 
each member of the productive society should have strictly ap- 
portioned to him the exact value of the product of his social 
labor is a pure delusion. ... It is true the promise was for- 
merly proclaimed from the housetops by the traveling preachers 
of social democracy, but it is, nevertheless, a pure superstition, 
if it be not conscious decoy. Nor has socialism discovered (it is 
as a matter of fact indiscoverable) the formula for the " fair " 
wage, that is, the reward exactly commensurate with the value 
of the product of each man's labor contribution. The propor- 
tionate share of each in the value created by a joint product 
cannot possibly be determined in associated production of any 
kind, whether under the .capitalistic system or in the socialistic 
plan which excludes private capital. It is wholly impossible to 
decide how much is contributed by labor and how much by cap- 
ital to the value and amount of the joint product ; for the prod- 
uct is the indivisible result of the joint work of capital, labor, 
and the gratuitous cooperation of nature. Socialism, it is true, 
sets aside in two master strokes the factors capital and nature 
in dealing with the question of distribution, by turning capital 
into common property for which no question of profit will re- 
main, and by uniting all productive concerns of every kind — 



SOCIALISM 687 

those where the natural factors are favorable, and those where 
they are most iinfavoiable alike — into one common calculation, 
equal contributions of lal)or time having an equal claim for 
remuneration. Let us leave out of the question what I have 
already pointed out to be the serious dilliculties of effecting 
this twofold elimination on democratic lines. Will the "fair" 
value resulting from each man's contribution of labor even then 
be secured to all when the necessary needs of the community 
are first satisfied, and then the rest of the product (valued ac- 
cording to the amount of social labor time absorbed by the vari- 
ous classes of goods) distributed according to the time which 
each has given to work ? By no means. On the contrary, each 
social worker who contributed more in a given time than his 
fellows would be disproportionately handicapped at the outset, 
in a covert manner, by the preliminary deduction of all that 
was necessary for the public wants. All whose average pro- 
ductiveness was higher than that of their neighbors would in 
this way come short in their share of remuneration. He who 
produced goods of a really valuable kind, he who contributed 
the creative idea which alone can set higher productivity on 
foot, he who by some act of prudence and watchfulness has 
saved the revenue, — each and all these would not only fail to 
receive the exact share that was due to them, they would come 
very short indeed in proportion to tlie value of their contribu- 
tion, the divisible remainder of the products being divided 
merely according to the time spent in labor. And I say noth- 
ing of the fact that the workers may be grossl}' exploited not 
only by capitalisits, employers, and landlords, but also by those 
demagogues who have been lifted to the surface out of the mass 
of the common people by favoritism, by setting aside the honest 
and capable, and by the indolence of the mass of the people. It 
is also quite impossible to form an accurate estimate among the 
laborers alone of the value of the product in proportion to tlie 
amount of revenue created by each several labor contribution. 
The portions of labor time devoted by different laborers in 
concert to the creation of an indivisible product value are not 
in equal proportion, still less in any proportion that can be 



688 SELECTED EEADINGS IX ECONOMICS 

exactly computed, causally concerned in the amount, and least 
of all in the value of the entire product. The socialist theory 
of labor cost which, moreover, could'only be true in the case of 
a constant equilibrium between the social supply and demand 
as a whole, is as far from having found the key to the " fair " 
distribution of the value of production as was Heinrich von 
Thiinen Avhen he apportioned to the laborer the geometric mean 
Vop, when a is the requirement for subsistence and p the value 
of the product, or as the well-meaning Austrian priest Weiss, 
who recently — excited to Thomist moral studies by the chal- 
lenge of the Pope — decided that the fair distribution of rev- 
enue would be that the capitalist should afford the necessary 
maintenance to the wage laborer and to himself, while the rest 
of the profit over and above this necessary maintenance should 
be divided in proportion to the business capital of the entre- 
preneur and the unredeemed educational outlay of the wage 
laborer. It is absolutely impossible to determine the exact pro- 
portion which is contributed by capital, by labor, and by nature, 
or by successive relays of capital or of labor to the amount of the 
product or to what is to-day its exchange value, but what in the 
coUectivist regime Avould be its public appraisement. . . . 
******** 

We must have the courage to call the child by its right 
name: to effect a fair distribution of the product among the 
laborers we must not attempt an exact individual agreement 
between the income of each and the product value of his work, 
but we must rather endeavor ~ that all in proportion to their 
efforts should receive enough not merely to exist in poverty 
and need, but to live and work as strong and well-equipped 
members in the service of the community, and to be able to lead 
a contented life without mercenary aims or ideas. This would 
not be assured to him by giving him the product of his social 
labor time, not even nearly so much assured as it is in the capital- 
istic industrial system by the competition of prices, wages, and 
rents, or as it may in the future still more effectually be secured 
by carrying on the conflict respecting wage agreements between 
adequate class organizations. Not that unrestrained capitalism 



SOCIALISM 68'J 

would allows of a perfect system of distribution ; but neither 
would a democratic organization of collective production be at 
all likely to effect a fair distribution according to labor time 
without discouraging the industrious and favoring the lazy. 
The use value of labor, its social meritoriousness would, in a 
system of reward according to a mere theory of cost, be entirely 
overlooked. 

Social democratic criticism does, it is true, in part uphold the 
" iron law of wages," according to which the wage laborer 
receives only according to his social standing what is absolutely 
necessary for his maintenance, while the ''increment" or en- 
hanced value produced by his labor is bloodthirstily sucked up 
by his employer in the form of profits of capital. I shall pres- 
ently have to show you that this whole story of the capitalist 
robber's appropriation of the increment when more closely 
examined turns out to be entirely baseless ; seen in a clear 
light it appears as a gigantic exaggeration of the same criticism 
which Aristotle, in a way that remains unsurpassed, applied to 
the abuse of property for purposes of exploitation. Marx him- 
self quotes this early critic of the wealthy exploiter, or as 
Aristotle himself termed it, of Chrematistic. 

Not only has social democracy failed to find the mathematical 
formula of distributive fairness ; it will not and it cannot, in the 
sixth place, fulfill its claim of preserving that proportion be- 
tween the social value of work performed by the individual and 
the social value of reward received by him from the cojnmunity, 
which is so indispensable alike in the interests of the individual 
and of society, and in which lies the guarantee of industrial 
economy in the service of the whole. This claim, which is daily 
making itself more clearly felt, though it is not as yet practi- 
cally attainable, is not an individualist principle but an essen- 
tially social one, and true for all time ; for if a worker who does 
more than his fellows for the service of the community comes 
by that means to the front, then the whole nation gets the full 
benefit of the best industry and insight, the fidelity, virtue, 
and economy of all its most distinguished members ; the com- 
munity and through it the individuals attain by means of this 



690 SELECTED EEADINGS IN ECONOMICS 

proportionate remuneration, both material and ideal, the highest 
attainable measure of well-being. In a word, the result is the 
participation of the masses in the fruits of the best labor, the full- 
ness of practical equalization and adjustment. But however 
socially useful this proportional remuneration be, and however 
little any continuous advance in civilization can be made Avithout 
its enforcements, the principle is still undeniably, in the highest 
and best sense of the word, aristocratic. It means the aristoc- 
racy of merit, of the highest worth, the superior position and 
superior enjoyment, both material and ideal, of those who do 
most for the interest of the whole. This proportionate remu- 
neration is totally incompatible with a one-sided democratic 
equality. A social democracy which once admitted this prin- 
ciple would no longer be a democracy at all after the heart of 
the masses. But social democracy does not at all agree with 
this fundamental requirement of any actual productive social 
organization; it insists upon distributing the divisible portion 
of the result of production either in proportion to the time spent 
in labor as has been demanded by some, or communistically, as 
in the Gotha Programme, "according to reasonable needs," 
entirely without reference to the merit and productivity of each 
separate performance. . . . 

This leads me to speak of the impracticability of another and 
a very important promise of social democracy, namely, that of 
further distribution of the product in a brotherly fashion accord- 
ing to needs. Even if social democracy could prove — which it 
cannot — that it could guarantee to every man the realized value 
of his labor, its wage system would still be totally inadequate, 
and a blow direct to communism properly so-called. The con- 
sistent stickler for equality and practical brotherhood would 
demand a distribution to the weak also according to their needs. 
As a matter of fact, this view finds a place even in the exist- 
ing society of to-day. For the primary " capitalistic " distribu- 
tion of incomes is supplemented by a second, a third, and a 
fourth, for we have the handing over of a share in the income, 
dictated by affection, to the family and friends, next the mutual 
benefits conferred by insurance policies, the action of benevo- 



SOriALlSM 691 

lence and philanthropy towards the unfortunate and the needy, 
and .the apportioning of burdens imposed by the state to the 
individual's capacity for bearing them. 

In every kind of social organization the treatment of misfor- 
tune and destitution must, to some extent, find a place ; that 
is the germ of truth wiiich lies at the bottom of communism 
properly so-called. But collective production with distribution 
according to the value of tlie labor contribution (Eisenach l*ro- 
grarame of 1869), makes in itself no provision for this need. 
And worst of all, social democracy makes no attempt to fill up 
this gap, and even the Gotha Programme of 1879 cannot grapple 
with it. If in a democratic collectivism it were to be attempted 
from the outset to apportion men's share, not according to their 
contribution of work, but according to their needs, the result 
would be that shortly every portion of the " sovereign people " 
would appear to be, and would even be, in a great state of 
need and destitution. Everything would get out of hand, and 
a hopeless confusion ensue, the only way out of the difficulty 
being to declare a universal equality of need, a solution most 
unjust, most w^earisome, and most conducive to idleness. Demo- 
cratic collectivism, therefore, is not more consistent either with 
the proportionate remuneration of labor according to its value, 
or with the brotherly distribution of income according to the 
reasonable needs of each, than is the existing social order. 

In the eighth place, democratic collectivism makes a further 
and most weighty promise in holding out an assured prospect 
of entirely suppressing all "exploitation," or as Marx expresses 
it, all sucking up of the unearned increment of labor. I do not 
deny that, with an unrestrained freedom of capitalistic gain, 
much exploitation does actually take place, and that such ex- 
ploitation is even possible to the degree which forces dow'n the 
wage laborer to a starvation level. But in admitting this I l)}- 
no means take it as proved that under capitalistic production 
the grinding down of labor by capital cannot be prevented. 
Still less is it proved that the whole of capital profits over and 
above that portion wliich compensates the entrepreneur for his 
expenditure of time and labor is so much stolen from the wage 



692 SELECTED EEADINGS IN ECONOMICS 

laborer of the real value created by his paid labor. Since, as I 
have shown, the real value contributed by labor to the product 
cannot be determined, it is as impossible to prove that exploita- 
tion would be entirely suppressed in the " state for the people," 
as that the absorption of the increment actually goes on under 
the capitalistic regime, and thus the profits of capital are by no 
means proved to be a form of exploitation. In the social state, 
just because no more individual home production would go on, 
a distribution of the entire product of labor or its full realized 
value would not be possible ; collectivism would open a far wider 
field for exploitation than any hitherto known system of pro- 
duction, for communism is a thoroughgoing and gigantic system 
of appropriation of the increment. This whole one-sided indi- 
vidualistic representation of the exact balancing of the reward 
and the performance of labor is entirely fallacious, though it 
has been so frequently preached to the proletariat. The highest 
gains of capital are sometimes thoroughly well-merited, in cases 
where the entrepreneur, mainly by his own skill in manipu- 
lating and placing his capital or his labor, or it may be his 
capital only, has achieved a great success in production. How 
much of the value of the common product is to be ascribed to 
the influence of capital and how much to the share of paid 
labor, is, as I have said, not determinable. To designate, as 
does Marx, the whole profits of capital Plunder, carried on by 
appropriation by capital of the product value created by wage 
labor, is in itself a plundering outbreak of hypercritical logic. 
It is wholly vain to prophesy that in the ideal state of demo- 
cratic collective production the door will be entirely closed 
against all exploitation, and all possibility of the depression of 
wages to a starvation limit forever at an end. The private capi- 
talist of course could no longer exploit the wage laborer, since 
all private capital would be over and done with. But laborer 
could very really exploit laborer, the administrators could ex- 
ploit those under them, the lazy could exploit the industrious, 
the impudent their more modest fellow-workers, and the dema- 
gogue those who opposed him. Under such a system above all 
others it would be impossible to set any limits to this. It would 



SOCIALISM 693 

be the very system to lend itself most freely to exploitation, as 
it would have no means of defending itself from practical dema- 
gogy and the discouraging of the more productive and more 
useful class of labor. With the quantitative reckoning of labor 
time, with the setting up of a " normal performance of work," 
with the merging of intensive and extensive measurement of 
labor, things might reach such a pitch that Marx's vampire, 
the capitalist, would show up as a highly respectable figure 
compared with the social democratic parasites, hoodwinkers of 
the people, a niajorit}' of idlers and sluggards. The state would 
be the archvampire, the new state, whose function it would be 
to provide pleasure for the people and to fill up for each and 
all the highest measure of earthly bliss ! Again, in the inclu- 
sion of all the land into state-leased property, or tlie absorption 
of all ground rents in the form of taxes, as Henry George's 
land-nationalization scheme proposes, there would be no guar- 
antee against exploitation in the form of lavish state expendi- 
ture for the sweetening of the populace. 

In the ninth place, social democracy makes another impossible 
promise, — the avoidance of all paralysis of trade. 

The misery of undeserved loss of em[)loyment is the greatest 
terror which besets the industrious poor who have no possessions. 
Social democratic criticism ascribes the terrible distresses of each 
great paralysis of trade to the capitalistic system of production, 
and to no other cause. There are two peculiarities in this system, 
they say, which of necessity are forever bringing round these 
stoppages of trade ; one is the tyranny of the economic situation, 
which society fails to regulate, the other the lack of purchasing 
power among the masses owing to the lowness of their wage 
as compared with the value created by their labor. Among 
tlie innumerable competing branches of industry, each, they 
say, produces recklessly into the air without knowledge of the 
demand, and without knowledge of the extent of their rivals' 
production ; hence the economic situation, the power of uncon- 
trollable social causality, becomes predominant in capitalistic 
society, as Lassalle has pointed out with great skill and clear- 
ness; supply and demand from time to time become glaringly 



694 SELECTED EEADINGS IN ECONOMICS 

out of proportion ; the disturbed equilibrium can only be restored 
through a stoppage of trade. The other factor in these trade 
crises of industrial production on a large scale is, according to 
these same critics, that the labor wage does not increase in pro- 
portion to the rising productivity of labor and capital ; this re- 
sults in production for which there is no effective demand, or 
overproduction ; hence paralysis of trade, the people famishing in 
the midst of a superfluity of production, masses of hungry laborers 
able and willing to produce, but no employment for them. Both 
these evils collectivism promises to remove : an absolutely closed 
system of collective production resting on an accurate estimate 
of demands and needs will hold in constant equilibrium every 
kind of supply with every kind of requirement, and the laborers, 
who in return for their contribution of labor time are to receive the 
whole produce of their labor in due portions, will thus be through- 
out the whole range of production competent to purchase and to 
consume ; hence in the " social state " there will be no paralyses 
of trade. Such is the social democratic teaching. We cannot, I 
freely allow, do enough in the endeavor to combat and avoid the 
misery of these trade stoppages ; it hangs like the sword of 
Damocles over the heads of the non-propertied laborers ; it 
embitters the existence of every one of them who reflects and 
who has the care and nurture of a family to provide for. But 
for all that it must not be believed that exclusive collective pro- 
duction, even on democratic lines, would entirely put an end to 
the overwhelming force of the economic situation, or that in- 
sufficiency of wage is the main cause of such crises and the great 
disturber of the equilibrium between supply and demand. The 
crises are due to the action, not only of social, but also of natural 
conditions, and of these overpowering chains of circumstances a 
very large proportion would be insurmountable even for the 
socialistic state. The alternations of good and bad harvests, the 
varying degrees of severity in successive winters, revolutions in 
technical appliances, the unregulated shifting of the population, 
the lack of organized emigration or any trustworthy intelligence 
bureau for labor, the entire freedom of choice as to employment 
and place of abode, and of demand for commodities, all these and 



SOCIALISM 695 

other circumstances have an inevitable share in such distuibances 
of equilibrium. Even the state of the future could not gain an 
entire mastery over all these causes, while in the state of to-day 
it would be possible to introduce strong and sufficient prevent- 
ives by a positive social and industrial policy. Collectivism on 
an authoritative basis would perhaps master the evil to a certain 
extent, of course only by means of strenuous regulation of needs 
— which would be at the cost of individual freedom of demand 
and compulsion of individual tastes in the selection of productive 
work — and by constant political interference with the move- 
ment of population ; but it still remains doubtful whether these 
means would not altogether entail a larger amount of unhappi- 
ness of a different kind. Democratic collectivism, by the very 
fact of its freedom, cannot and dare not address itself to the per- 
formance of this tremendous task ; the eternal unrest and dis- 
turbance of this administrative guidance of production, together 
with the capricious changes of desire and demand in the sov- 
ereign people, would most certainly increase to an extraordinary 
degree the tyrannous fatality of these ever-recurrent crises. 
The constant absorption by capital of the increased value created 
by labor, which is supposed to be a further cause of the crises, 
is not, as I have said, within the range of proof ; and so far as 
exploitation does exist it is not to be combated by collective pro- 
duction, but by quite other means ; and further, if the reduction 
of wages to a starvation level were in reality the rule, the absorp- 
tion by capital of labor-created value would cause not paralysis 
of trade, but the increased production of those goods and com- 
modities which the capitalists specially desire. 

Democratic collectivism promises, in the tenth place, the 
abolition of the wage system and of all private service, which 
involves the continuous enslavement of the proletariat. " Wage 
slavery " is to be superseded by a system of universal service 
directly for the community; the whole of productive labor would 
be placed in the position of a paid official department of the 
democratic republic. There is no doubt that private service is 
in principle very irksome and oppressive to workmen of high 
self-respect and personal superiority. But it has not been proved 



696 SELECTED READINGS IN ECONOMICS 

that for the great mass of existing wage laborers the position of 
private service could not be made tolerable by some other means, 
nor has it been demonstrated that the elite of the working classes 
cannot find within the limits of the capitalistic sphere of indus- 
try leading positions which are also suited to satisfy a high sense 
of self-respect. It is certain, on the other hand, that there is no 
possible organization of society in which no one must obey and 
every one can rule, or in which all ruling would be mere idle 
pleasure and satisfaction. In the existing order of society the 
mass of officials who make up the administration, both central 
and local, although they have the great advantages of immediate 
and uninterrupted self-supporting labor, have it at the price of 
very strict obedience towards often the most insignificant and 
spiteful nominees of favoritism, and in the face of very great un- 
certainty as to impartial and fair advancement on the ladder of 
promotion. The freedom of the individual would lose in a degree 
which democracy w^ould by no means tolerate. Popular govern- 
ment very easily degenerates into mob rule, and this is always 
more favorable to the common and the insignificant than to the 
noble and distinguished. Hence democratic collectivism itself 
would be likely to wound in a high degree the most sensitive 
self-respect, without leaving as much freedom as does the present 
system of private service in the choice of employment and em- 
ployer, or of a place of abode. Its only equality would be that 
no one was in any wise independent, but all slaves of the majority, 
and on this point again democratic collectivism would come to 
grief, and utterly fail to keep the promises it makes to the better 
class of workingmen, whose self-respect is injured by the exist- 
ing state of things. 

Before we take leave of our criticism of social democracy on 
the industrial side, allow me to submit to you two further con- 
siderations which suggest answers to two questions that are still 
pending. In the first place, it might be asked whether propor- 
tional collectivism at least does not admit of being so reasonably 
formulated as to be within the range of practical discussion or 
possible acceptance. And conversely the question suggests itr 
self, whether radical collectivism, even in its most practicable 



SOCIALISM 097 

form, will not need to give way to the requirements of other 
social interests. Both these questions we have to fornuilate and 
to answer, following our chosen method of stating them in the 
best and most practical terms that we can discover. 

First, to deal with the possibility of a more practical formu- 
lation of proportional socialism, and to criticise such a formula- 
tion when made. 

So far as I know, social democracy to this day has made no 
declaration through the lips of the literary and political leaders 
of the proletariat regarding the positive features of a system of 
distribution which should effectually reconcile the interest of the 
society as a whole in the hiyhest possible productivity of national 
labor, with the interest of each individual in securing a propor- 
tionate share of the result according to the measure of his perfor- 
mance. When they began to tend so decidedly towards the 
communism of Marx this question ceased to exist for them. 
And even proportional socialism was so radical and Utopian as 
not even to state it. 

For your enlightenment I will endeavor to supply this avowed 
deficiency from the posthumous works of Rodbertus, this great 
thinker having, though himself no social democrat, made more 
definite proposals than any one else has done, in the direction 
in which social democracy would have to look for its first 
attempt at a practical realization consistent with its principles, 
in his studies on normal time, and the normal workingday, 
further on normal estimation of value, and finally on the normal 
division or distribution between the leaders of production and 
the producing laborers. 

So far as I understand Rodbertus tlie fundamental outlines 
of this question are as follows : in order to carry out the dis- 
tribution of the net result of national production among all 
the workers in proportion to their contributions to it, without 
cutting short the better laborers on account of the less good, 
and without endangering productivity, it would be necessary, 
he thinks, to reduce the varying individual performances of the 
several laborers to a normal common measure. This measure 
would be deduced, as regards the common measurement of 



698 SELECTED KEADINGS IN ECONOMICS 

labor of different kinds and in different branches of business, 
from the normal ^me-labor day, and, as regards the reduction to 
a common denominator of unequal individual performances in 
equal labor time, from the normal work-labov day. 

For astronomically equal portions of labor time would never- 
theless mean different amounts of exertion and of self-sacrifice 
for society, according to the differing nature of the employment. 
We must, therefore, reduce the working labor time to an average 
social labor time, — the normal ^me-labor day. Suppose this to be 
ten hours, then six hours of underground labor would be counted 
as equal to it, as also twelve hours of spinning or weaving. Or, 
what would come to the same thing, the normal time-labor day 
would be in mining six hours, in textile manufacture twelve 
hours, the mining hour being equal to one and two-thirds, and 
the textile hour to five sixths, of the average labor hour. The 
normal time-labor day would serve to adjust periodically the 
relationships between laborers who were differently strained 
according to the nature of their work, and to ascribe to each 
kind of work and occupation its normal proportionate share of 
the benefit of their various labors in the normal time measure, 
and relatively to decide the due limits of those proportions. 
This, it is said, would insure an individually fair wage ; for if 
a man in the mining industry worked three instead of six hours, 
or in spinning or weaving worked six instead of twelve hours, 
he would receive a share of remuneration apportioned only to a 
half normal time and labor day. 

But the normal time day would not be sufficient to insure a. 
fair equilibrium of work and reward ; for in a given time spent 
on the same kind of labor, one individual will accomplish less, 
another more. The combined interest of the whole nation, there- 
fore, and the necessity for a fair wage as between individual 
laborers demand that an average of normal achievement in a 
specified labor time should be struck ; in short, the establishment 
of a unit or measure of normal work. We must normalize also 
" according to work." This would be done somewhat thus : 
after the normal time-labor day had been fixed for each kind of 
work at six, eight, ten, or twelve hours, as the case might be 



SOCIALISM 699 

(according to the hardness of the work, etc.), there would need 
to be fixed also for eacli kind of labor the normal achievement 
for the said time-labor day ; that is, a normal rate must be 
struck of the quantity of work which an average laborer, with 
average industry and average skill, can get through in his spe- 
cial department during the said time-labor day. The quantity 
arrived at would then represent in each kind of labor the normal 
labor quantum of a normal time-labor day, and would thus con- 
stitute the normal u'ork-lahor day in each department, which 
would be equal to what each laborer would have to get through 
in his normal time-labor day, in order to be paid or accredited 
for a full labor day, that is, for the normal work-labor day. If, 
therefore, the workman were to accomplish in a full time-labor 
day either half as much again as the normal work, or half of it, 
he would be credited, in coal mining for example, with one and a 
half or one half day of normal work time for his day of six 
hours, and in textile industry, on the same assumption, with 
the same amounts for the day of twelve houre. 

Contributions of labor time would thus be made commensur- 
able and capable of comparison and adjustment, not only between 
the various kinds and divisions of labor, but also between the 
various grades of individual capacity. That part of the national 
product which was to fall to the share of national wage labor iis 
a whole, would be distributed among the wage laborers in the 
above proportions. Hence if this portion were to increase in 
amount owing to a further regulation which we shall presently 
explain, the share of each several laborer would proportionately 
rise with the rising value of national production. We should 
thus, it is supposed, have reached the basis of an individually 
fair " social- wage system," a system which gives better reward 
to the better laborer, thus adjusting the claims and interests of 
laborers among themselves, which secures the productivity of 
national labor by giving different rewards to good and to bad 
laborers, thus recognizing the claim and interest of the society 
as a whole, and lastly, one which secures the proportionate rise 
of the individual labor wage, with the rising productivity of 
national labor. 



700 SELECTED EEADINGS IN ECONOMICS 

But a fair share for wage labor would be thus only partially 
and imperfectly secured, unless a more complete system of social 
valuation of products in normal labor coin instead of in metal 
coin were introduced. 

Rodbertus, in fact, wishes to see his normal work-labor day 
(equal to ten working hours) made the common measure of the 
value of labor products as well as of amounts of labor. To all 
the above computations the most searching of all must be added ; 
the normal work-labor day must be erected into work time or 
normal time, and from this work time or normal labor, according 
to this balanced average of labor, must be computed not only 
(1) the normal value of the product in every manufacture, but 
also (2) the amount of reward to be assigned for each contribu- 
tion of work. 

Let us suppose that it is possible, as a matter of fact, to carry 
out these calculations. To effect the normalizing of the product 
value according to work time or normal labor, it would be 
necessary to state the normal work-labor day (which in each 
kind of labor stands for one day, a varying number of hours 
according to the nature of the employment, and which repre- 
sents a product quantity equal to a normal day's work), in terms 
of work time or normal labor, and to divide it into the same 
number, of ten hours of work, in all branches of labor. By this 
work time the product of every kind of labor would be measured. 
A product quantity which was equal to a full normal day's 
work, were it the result of only a half normal time-labor day, or 
of two normal time-labor days, would repi^esent or be worth one 
workday (ten work hours) ; a product quantity which was equal 
to half a normal day's work, whether or not it were the result 
of any specified normal labor time, would represent or be worth 
half a workday, or five work hours ; and so on. The product 
of any labor which represented one work hour would thus, 
according to this scale, be equal to the product of any other 
kind of labor which represented one work hour or, to express 
it more generally, products of equal work time would be equal to 
each other in value. This expresses approximately the view 
of Rodbertus. 



SOCIALISM 701 

A real normal labor clay, both time-labor day and work-labor 
day, would be indispensable for any industrial system whicli 
should seek by a resolute state interference to balance, on the 
one hand, by the distribution of wages, " the claims and interests 
of the workmen among tliemselves," and on the other, for the 
sake of productivity, " the claims and interests of the workmen 
witli the claims and interests of the whole people." It would 
be indispensable, not only for a state-regulated capitalism with 
private property in the means of production, such as Rodbertus 
conceives of as possible under a powerful monarchy, but indeed 
for every kind, and especially so for democratic socialism, if it 
is to return to the principles of the Eisenach Programme, and 
make work and enjoyment proportional for every one, instead of 
following the communistic Gotha Programme of distribution 
" according to reasonable needs." The only difference would be 
that any socialistic system would have to divide tlie whole 
result of production, after subtracting the amount necessarj' for 
the public need, according to the rate of the contributions 
of normal time, and to assign the share of each in products 
valued according to the normal cost in work, while Rodbertus, 
who is an advocate of private property, would need to add 
to the above stipulations yet another, namely, the periodical 
regulation or normalizing of wage relations in all branches 
of industry. 

Rodbertus is quite clear on this last point ; under the authority 
of the state the fixed wage must also be established in every 
department of labor for the 'normal labor day in that depart- 
ment, settled by the concerted action of employers and employed ; 
and these settlements must be periodically renewed, and must 
also rise in proportion to the rising productivity of labor. Rodber- 
tus indeed recognizes quite clearly the difference between regu- 
lated capitalism and regulated (non-communistic — non-anarchist) 
socialism. If the laborers only, he proceeds to say, had a right 
to share the national product value, then each laborer would 
have as his due the whole result of the normal labor contrib- 
uted by him, and the whole national product value would be 
divided among the laborers alom>. For instance, if a laborer had 



702 SELECTED EEADINGS IN ECONOMICS 

contributed one and a half normal days' work in his whole 
normal time-labor day, he would then receive also in wages a 
return for fifteen work hours ; but only a return for five work 
hours if he had only accomplished half a normal day's work in 
his whole normal time-labor day. The whole national income, 
worth, say, x normal labor, would go in labor wage alone, which 
would amount to the value of x normal labor. But such a condi- 
tion of things, however much it may hover before the eyes of a 
labor leader, is, in Rodbertus's opinion, wholly unattainable. 
Under no possible social conditions could the laborer demand 
the entire product of his normal labor; his wage could never 
represent the entire normal labor contributed by him ; there 
must, under any circumstances, be first withdrawn that which 
we have to-day in the form of rents and profits of capital. 
Ground rents and capital profits Rodbertus regards as compen- 
sation for " indirect " labor, for the industrial function of the 
leadership of production ; thus, even if the laborer in his normal 
time-labor day has contributed ten hours normal labor, he may 
yet chance to receive in his wages a return for only three hours' 
work, — in other words, he might be allotted the product value 
of only three work hours ; for the product value of one work 
hour might perhaps represent his contribution to the needs of 
the state, while three might go in each of what we now call 
ground rents and capital profits. 

It is true that this further regulation of shares would be 
simply superfluous if once private ownership in the means of 
production were abolished; but from the normal labor day, 
normal time, normal money, normal valuation of commodities 
and of kinds of labor performance, no system of practical 
collectivism could escape. It would rather be the case that 
normalizing socialism would undergo still further development, 
in that normal value would have to be altered backwards and 
forwards with the changing value in use of commodities and 
labor services ; for otherwise supply and demand could not be 
held in equilibrium, and the constant free circulation of the 
forces of labor among the various departments of it would not 
be secured. 



SOCIALISM 703 

Let us assume then that this whole process of normalization 
would be carried out on democratic lines : would even so its aim 
and end be absolutely secured? Even allowing myself to sup- 
pose, in answering this question, that the management of the 
national industry were characterized by the best intentions and 
the best insight and perspicacity, still I cannot feel convinced 
that it would be so. In every department into which the proc- 
ess of normalization was carried it would practically meet with 
almost insuperable difficulties and enormous obstacles no less 
formidable than those which the capitalistic industrial system 
itself has to face in times of strikes. How will it be possible to 
bring about a common agreement among the various departments 
concerning an all-round fair reduction of the particular to the 
normal time-labor day? How is it conceivable that we should 
arrive at a fair average normal time day for the several branches 
of the same department of trade, which would never be all 
equally favorably constituted, or at a generally recognized com- 
mon measure of normal work between the various departments, 
and within each department between the various branch con- 
cerns? How shall we constitute an effectual test of normal 
quality of work, and how insure reduction of recompense for 
inferior achievement? How will it be possible to regulate to 
the satisfaction of all the rise and fall of the noinial scales 
of value in proportion to the fluctuations of demand? How 
compute the values of the respective labor of many, which 
goes to the construction of a single product, and cannot thus 
be divided out into individual performances piece by piece? 
Even with the best organization, wherever normalization was 
concerned with medium values, we should constantly lose the 
normal standard of the individual, that is, the exact remu- 
neration of each according to his own merits, and moreover 
his cooperation in the work of estimating values. There would 
be an end of all individualizing free determination of the 
values of products and achievements. I do not therefore be- 
lieve that democratic normalizing socialism would accomplish 
better results or even as good as in the existing national indus- 
try are at least approximately accomplished by the organized 



704 SELECTED EEADINGS IN ECONOMICS 

competition of prices in the professional sphere and in the 
markets of trade. 

But how would it be if the democratic management of society 
turned out to be neither intelligent nor upright, neither honest, 
nor prudent nor wise? How then would the purely socialistic 
distribution of products appear when compared with the cap- 
italistic system of wages, rent, and prices, limited by the law of 
a positive social policy, and regulated within those limits by 
professional concert, and by market estimates? Assuredly not 
to advantage. What possible guarantee would there be that the 
masses, the majority, with its unlimited potency, would always 
hit upon the right result, and that hence, under democratic col- 
lectivism, less unfairness would on the whole be perpetrated 
than under a well-ordered lawful capitalism ? There would be 
no possible guarantee, not the remotest. 

Thus radical collectivism would inevitably fail, even if real- 
ized in the most practically plausible form which has yet been 
devised for it. 

The above critical exposition may be considered, I think, to 
exhaust the cardinal points of the best conceivable programme 
of social democracy on the industrial side, and to demonstrate 
the impossibility of the plan by the help of carefully thought 
out and most pertinent considerations. It is evident that this 
very extreme of individualism, which runs in the veins of 
socialism no less than of capitalism, fundamentally vitiates the 
promises of the social democrats. Democratic collectivism is 
impossible and cannot even on the industrial side fulfill a single 
one of its promises. If it would become practicable it must 
alter its practice considerably and introduce authority into its 
scheme, with which addition socialism would become conceiv- 
able, though it would even then be demonstrably no better than 
positive improvement based on the existing system of society. 
This would, it is true, be far from introducing the universal 
compulsory labor system, as some critics have declared, who, by 
proving too much, end in proving nothing, but neither would it 
result in that freedom and equality for all to which the prole- 
tariat aspires, and which social democracy holds out to it in 



SOCIALISM 705 

prospect. For the sake of a nebulous improvisation, a visionar}- 
scheme which bears plainly on its front the impress of the dis- 
appointment of all its promises, — for the sake of this, social 
democracy is ready to break in pieces the whole existing frame- 
work of society, and with it the happiness of all the proper- 
tied classes, and to uproot the whole nation from the ground 
of its historic development, — an impossible task, a hopeless 
undertaking ! 






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